IHT on pensions could delay probate, warns ATT
Plans to charge inheritance tax on unused pension pots could lead to delayed probate agreements and potential financial problems for grieving families, the Association of Taxation Technicians (ATT) has warned.
The Chancellor announced in October's Budget that, from April 2027, any unused pension funds or death benefits will be included within the value of an individual's estate on death and be subjected to inheritance tax.
Currently, those managing the affairs of the deceased, known as personal representatives, must only inform Pension Scheme Administrators (PSAs) of the death of an individual. However, under the new proposals, they will liaise with PSAs to establish the value of unused pension assets and allocate any allowances to allow PSAs to calculate their share of any IHT bill. Each pension fund will then need to pay their share of IHT to HMRC before personal representatives can apply for probate.
The ATT has warned that the new requirements will result in increased costs, time and stress of the additional administration work, and beneficiaries could even run into financial trouble if probate is delayed. The association is calling for a separate IHT regime for pensions.
Jon Stride, Vice Chair of the ATT Technical Steering Group, said:
“The need to resolve the IHT position first, even if no IHT is ultimately due, is likely to delay when PSAs can pay income or lump sums out to survivors. This could cause cashflow issues for some surviving spouses or partners. HMRC estimates that 50,000 estates each year will see changes to their IHT liability as a result of the changes - but many more will experience the delays involved with complying.
“The measures may also catch out unmarried couples who were envisaging that any undrawn pension assets would be available to support the survivor, as the funds may first be reduced by an IHT charge. Married couples, in contrast, can continue to leave pension assets to each other free of IHT.
“Given the administrative challenges, we think there would be merit in exploring a separate IHT regime for pensions which would help to meet the Government's policy intention, without creating excessive burdens on personal representatives.”