Budget October 2024 - Pensions and IHT
benjaminfabi
Moderator
Nothing in the documents that tells us about this in any detail.
Best to go on is this statement from the full book https://www.gov.uk/government/publications/autumn-budget-2024
5.52 Inheritance tax: unused pension funds and death benefits – The government will bring unused pension funds and death benefits payable from a pension into a person’s estate for inheritance tax purposes from 6 April 2027. This will restore the principle that pensions should not be a vehicle for the accumulation of capital sums for the purposes of inheritance, as was the case prior to the 2015 pensions reforms.
I suppose they haven't actually worked out the detail, hence the 2.5 year lead in. My guess would be simply to remove nominee and successor FAD i.e. reverse the 2015 changes.
Comments
Okay I see there is now a consultation:
https://www.gov.uk/government/consultations/inheritance-tax-on-pensions-liability-reporting-and-payment/technical-consultation-inheritance-tax-on-pensions-liability-reporting-and-payment
This is way too complex. It could be so much simpler:
Remove nominee and successor FAD for starters. Then simply get scheme administrators to pay a lump sum to the beneficiary/ies after they deduct a 40% withholding tax, which the beneficiary can reclaim from the personal representatives.
Crazy stuff.
They are fixing something that was not caused by an IHT in 2015 with an IHT change in 2027.
One that will slow down benefits being set up, complicate administration for schemes , estates and HMRC, making them reliant on each other to fulfil their own goals and never mind the unintended consequences.
A one off tax charge (to broadly recover the tax relief attained) when a member to nominee or dependant to successor death benefit is set up.
Remove from IHT completely.
Say 30% for argument's sake that's it done.
Simplification, justified - no messing.
Yes Les I am in complete agreement. There is no need to create this outcome via a direct plug in to the IHT regime. It is needlessly complicated and doesn't actually reverse what 2015 did.
But this proposed way does give us knock-ons that raise more by stealth. For starters:
A direct tax charge wouldn't do any of these, and I'm sure there are more.
I don't think that would work.
My understanding is that with a pension, the pension trustee owns the underlying asset, so the member wouldn't directly hold shares in the underlying company, which makes it ineligible for business relief.
I might be wrong though.
I'm with you. IHT runs on beneficial interests amongst other things and I believe in an ISA the holder must have a beneficial interest in the assets. But in the pension world you have an entitlement to benefits based on policy values as oppose dto a direct beneficial interest in the underlying assets.
But I might be wrong too - this is hardcore techy techy and if this was a thing people whose pension were in their estate already may have done it and we'd have heard about it.