I am not sorry that those who have picked up a fortune in inheritance. It is now confirmed that they are going to have to pay 7.5% on inheritance tax outstanding to HMRC , six months after the death of a wealthy person. This is only if tax due has not been paid within six months of the death of the wealthy person. It relates to tax on unspent pension pots chosen to benefit from pension freedom exemptions.
Charging interest on money outstanding is quite reasonable of the Government and charging tax on an unspent pot of someone drawing down in retirement is a risk those in future will be taking when making decisions on how to use retirement savings.
The retirement savings in question, were originally supposed to be to “purchase” an annuity and freedom from this obligation was announced when Steve Webb was the Pension Minister in 2014. The decision was announced by George Osborne and immediately gave rise to a tax loophole for rich people.
That loophole meant that they could live off other savings than the pension and use the money saved in a “money purchase” pension , not to purchase an annuity but to avoid paying inheritance tax. That loophole is now being closed, the money free from being used as a “pension” but privilidged by an “exempt- exempt- exempt” tax treatment , is losing one of the three tax exemptions.
The same Steve Webb who was there the Pensions Minister is now calling another Government for making sure that the tax is paid in full and on time (or with commercial interest if not paid on time).
Here’s the parliamentary statement made this week confirming the state law will be applied. Thanks to Mary McDougall of the FT. In a response to Parliament’s upper house this week, Dan Tomlinson, exchequer secretary to the Treasury, said the government
“does not intend to change the existing, longstanding deadlines which ensure tax is collected quickly and efficiently”
“IHT is due at the end of the sixth month after the date of death”.
There are many things going on in the world right now that are inhumane. But forcing those who manage other’s affairs after their death to do so to a recent timescale is not high among them. Steve Webb is stretching Liberalism too far for me. I am a Liberal, all of my family have been Liberal and my father was the first Liberal lead of Dorset County Council. I deal with matters to do with his and my mother’s estate . I actually find this statement from Steve offensive to a family who will pay inheritance tax in due course
“It’s inhumane . . . No consideration has been given to the human dimension of this. Often bereaved people have a lot to cope with,”
said former Liberal Democrat pensions minister Sir Steve Webb, now a partner at consultancy LCP.
“What difference would six months make to the government, compared with the difference it would make to families?”
To write financially, it would mean paying an extra amount of IHT as late payment tax and that’s tough luck for those who struggle to find pension pots. By April 2027 they may have the dashboard to help them but if they don’t , they will have the records of the bereaved. If the bereaved has an unspent pot which forms part of an estate that will typically be valued at a million pounds of more, then I’d expect it to be valued within six months. If the worse happens and it doesn’t, then 7.75% pa hardly seems penal.
Steve Webb , you should stop pleading for the wealthy and continue your amazing work for those with prospect in retirement of poverty.
A little context
The government estimates its pension proposals will bring about 1.5 per cent more estates within the scope of death duties in 2027-28, on top of the 4 per cent that already exceed the £325,000 nil-rate band, which can rise to £500,000 where a property is passed on.
UK inheritance tax is applied at a rate of 40 per cent above the nil-rate band. Pensions will still pass to spouses and civil partners without incurring inheritance tax.