Grieving families will not be given more time to pay inheritance tax bills after the Treasury rejected calls for more time.
Thousands more families will be caught out when pensions will be included in the estate for inheritance tax purposes from April 2027. And the tax must be paid to HM Revenue & Customs within six months of death to avoid incurring interest at 7.75 per cent.
Campaigners, pension companies and politicians have pressed the government to extend the payment period to 12 or 24 months in cases involving pensions to reflect the increased problems facing property operators.
In January members of the economic affairs committee of the House of Lords warned that it was not realistic for personal representatives – usually a family member or a lawyer responsible for binding property – to meet the six-month deadline where pensions are concerned. It said that many active agents will have late payment benefits due to the time it is “impossible to meet”.
The committee, chaired by Labor peer Lord Liddle, has called on the government to extend the temporary payment period to 12 months and implement a “grace” period, during which interest payments will be suspended for at least two years while the new rules are implemented.
But in an update published on Tuesday, the Treasury rejected those recommendations. It said: “The government has no intention of changing the existing, long-standing, time-limits that ensure the tax is collected quickly and correctly. The inheritance tax must be paid at the end of the sixth month after the date of death.
The Times’s Smarter with Money campaign is calling on ministers to reject tax attacks in favor of long-term savings to give investors confidence and not be tricked into making bad decisions.
Rachel Vahey, of AJ Bell, an investment platform that has warned of further problems awaiting families caught up in the new rules, said: “It is disappointing that the government is digging in its heels and not even considering the change in the six-month deadline.
“Adding pensions to inheritance tax figures will prove to be an administrative disaster for personal representatives at a time when they are most vulnerable.”
Vahey said the six-month deadline was a relic of the past, when resolving financial issues was often straightforward. “As the number of people paying inheritance tax increases, HMRC is taking longer to process documents and issue inheritance tax bills.”
From April 2027 the pension will count towards the £325,000 of assets that each person can transfer tax-free. Anything above this tax-free allowance can be taxed at 40 per cent. Everything left to a spouse or civil partner is exempt from inheritance tax, and you get another £175,000 tax-free if you leave your home to a direct descendant and your estate is less than £2 million. Married couples and civil partners can inherit unused allowances, giving couples up to £1 million tax free.
Under the new regulations the personal representative will need to find all the pension pots of the deceased, contact each firm and get the correct values of those pots at the date of death. The agent must then calculate any tax liability and liaise with the pension beneficiary to decide how the tax will be paid – from the estate, the pension itself, or through the pension firm.
Interest on late payments is charged at the Bank of England base rate plus 4 per cent – making it currently 7.75 per cent. The Chancellor increased this rate from the Bank’s rate plus 2.5 percentage points in his first budget in 2024. Interest is charged every day from the day the tax is due until the debt is paid in full.
In some cases HMRC will allow the loan to be paid in ten annual installments but the first payment must be paid within six months.
#Inheritance #tax #families #Treasury #refuses #extension