Treasury rejects call to extend payment deadline for IHT on pensions

The Treasury has responded to the House of Lords’ report on bringing unused pensions into the scope of inheritance tax (IHT), accepting some recommendations while dismissing others, including extending the initial payment deadline and introducing a ‘safe harbour’.

Unused pension pots are set to be liable to IHT charges from April 2027 after the Finance (No.2) Bill received Royal Assent earlier this month (March).

The House of Lords Economic Affairs Committee recommended that the government should introduce a statutory safe harbour from late payment interest for personal representatives (PR), where evidence was provided that not meeting the deadline was out of their control.

It also urged the government to extend the six-month IHT payment deadline to 12 months for IHT on pension assets for a transitional period, to temporarily extend the payment deadline for IHT on pension assets to 12 months, and implement a ‘soft-landing period’ in which late payment interest will be suspended for a minimum of two years.

However, the Treasury rejected these recommendations, stating that the government did not intend to change the existing deadlines that ensured tax was collected quickly and efficiently.

“IHT is due at the end of the sixth month after the date of death,” the Treasury said.

“After this point, late payment interest will begin to accrue on the outstanding tax.

“The changes to the IHT treatment of pensions are consistent with the process which already exists for administering estates and paying any tax due.

“PRs are already responsible for administering the rest of the estate, including non-discretionary pension schemes which are already in scope of IHT.”

Meanwhile, the Treasury accepted some of the committee’s recommendations, and confirmed that the government would consult on information sharing regulations in the next three months.

It also confirmed that final guidance for the industry and PRs will be published, although it did not expect to release it until Spring 2027, around the same time the policy comes into force.

Commenting on the response, AJ Bell head of public policy, Rachel Vahey, expressed disappointment that the government had rejected the recommended extension to the six-month deadline to pay IHT.

“Extending the IHT payment deadline from six months to 12 months would help PRs immensely," she said.

“Otherwise, it’s easy to see how many estates and beneficiaries are going to face late interest payments at an excruciatingly high rate of 4 per cent above base rate level (currently 7.75 per cent) when they miss deadlines due to administrative jams.

“The six-month deadline was set in past centuries at a time when settling financial matters was generally a more straightforward process. As the number of people paying IHT continues to soar, the longer HMRC is taking to deal with the paperwork and issue IHT bills.

“AJ Bell and the wider pensions and financial advice industry have argued long and hard that there were far simpler and easier ways of achieving the policy and financial aims that would sidestep this distress.”

This article originally appeared in our sister publication Pensions Age.

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