STEP urges government to simplify inheritance tax

STEP, a professional body representing trust and estate practitioners, reiterated its demands for government action to simplify inheritance tax (IHT) rules regarding pensions. From April 2027, unused pension funds and death benefits will be considered part of a deceased person’s estate for IHT purposes. While STEP welcomed HMRC’s recent technical updates, it cautioned against the unmanageable complexity and unfair interest charges that could burden bereaved families.

Emily Deane TEP, STEP’s Technical Counsel, remarked that despite some progress, the new rules could complicate matters for grieving individuals. She stated, “What is needed is a fair system that works for all parties involved, and without simplifications, there is a real risk of delays, higher costs and growing reluctance to take on the executor role.” Ian Bond TEP, a member of STEP’s UK Technical Committee, echoed her sentiments, emphasising the need for a streamlined framework that allows tax to be paid directly from pension funds.

STEP outlined several issues with the existing proposals, including automatic interest on unpaid tax and timing misalignments between pension scheme administrators and personal representatives. The proposed structure could expose executors to liabilities on assets beyond their control, creating uncertainty during an already challenging time.

Furthermore, the body is concerned that the requirement for executors to engage with multiple pension providers could exacerbate delays in estate management. Jo Summers TEP highlighted that “pensions are not always easy to identify, and getting consistent, timely information from different providers can be challenging.”

To remedy these challenges, STEP has submitted recommendations to HMRC, advocating for IHT to be calculated directly at the pension fund level, the extension of the Direct Payment Scheme, and the issuance of automatic grants to prevent financial penalties from administrative delays. Emily Deane emphasised the importance of the reforms, stating that while changes are proceeding, “there is still time to make them work better in practice and without overwhelming people with unnecessary complexity.”