The Society of Pension Professionals (SPP) has proposed several changes to draft legislation relating to inheritance tax (IHT) on pensions to help the policy deliver the original policy intent and avoid unintended consequences.

In response to HMRC’s consultation on the draft legislation that would bring unspent pension pots into the scope of IHT from April 2027, the SPP called for an amendment to explicitly exclude death in service benefits from registered pension schemes being subject to IHT.

It raised concerns that not all death in service benefits payable from registered pension schemes fell within the IHT exemption.

To address this, the SPP urged HMRC to amend the requirement for members to ‘be in employment’ to members needing to ‘be in employment or other service’.

The organisation argued that this would avoid inadvertently excluding certain categories of members benefiting from the IHT exemption applying to death in service benefits payable from registered pension schemes.

Other recommendations included an explicit exclusion from IHT for trivial commutation lump sum benefits, and greater clarity of various issues such as estate components, the omission to act, income tax reclaim, and transfers of value.

The SPP also called for a proviso that the scheme administrator will not be required to pay an amount greater than the amount held by the scheme on the date on which the tax is paid.

Furthermore, it suggested that draft legislation requiring the scheme administrator to pay any tax within three weeks of the beneficiary’s notice to be changed to 30 business days, and that the scheme administrator should only be liable for interest that accrues on the amount specified in the notice as a result of late payment but not any interest that predates the notice or any liability not specified in the notice.

“Earlier this year the government accepted SPP’s key recommendation that administrators should not be liable for the reporting and payment of IHT on pensions and that this responsibility should lie with personal representatives,” commented SPP Legislation Committee chair, Shayala McRae.

“However, publication of this draft legislation shows there are still some issues to iron out to ensure it better delivers the original policy intent and avoids unintended consequences – and the recommendations in our response will help achieve that.”

---