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Financial advisers and wealth management leaders have called upon the Treasury to reconsider its approach to applying inheritance tax (IHT) to pension funds, citing significant concerns over potential delays and increased costs for bereaved families.
The autumn Budget announcement by Chancellor Rachel Reeves revealed plans to incorporate pension funds into inherited estates by April 2027. This strategic move, projected to generate £1.5bn annually for the Treasury by 2030, has sparked widespread debate within the financial services sector.
Industry professionals have highlighted severe operational challenges within the proposed framework. The Society of Pension Professionals has criticised the government’s timeline as unrealistic, particularly concerning the implementation of interest charges and penalties on pension scheme administrators for delays beyond their control.
Leading figures from prominent wealth management firms, including Interactive Investor, Quilter, and AJ Bell, have expressed their concerns directly to the chancellor. Their collective stance emphasises that the proposed system’s complexity could result in substantial delays in beneficiary payments and create unnecessary distress for families during bereavement.
The proposed legislation would require personal representatives to identify pension funds and calculate IHT obligations before scheme administrators could release funds. This process threatens to create significant bottlenecks, potentially affecting even those not liable for the tax.
Of particular concern is the impact on death-in-service benefits, which could face substantial inheritance tax bills when structured within registered pension schemes. The Treasury maintains its position, stating their focus remains on incentivising pension savings for retirement rather than wealth transfer vehicles.
Industry experts predict these changes could disproportionately affect lower-income families who may require quick access to funds for funeral expenses and immediate financial obligations. The six-month window for inheritance tax payment has been deemed insufficient, potentially exposing individuals to late payment penalties.
As the consultation period draws to a close, the pensions industry continues to advocate for a simplified approach that would better serve both the government’s revenue objectives and the practical needs of pension scheme members and their beneficiaries.
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