HMRC has confirmed that it is reviewing the issues and views expressed in the response to its consultation on plans to bring pensions into the scope of inheritance tax (IHT), and will publish both a formal response and draft legislation "later in the year".

Chancellor, Rachel Reeves, previously announced plans to remove the concession for pension pots to be passed on to anyone free of IHT as part of her inaugural Budget last year, launching a consultation on the plans shortly after this.

However, industry experts have already identified a number of problems that could be caused by the proposals, urging the government to consider “less costly, quicker, and ultimately more effective” alternatives.

In its latest Pension Schemes Newsletter, HMRC thanked those that have responded so far and those who have attended workshops to talk to it about the proposal.

"We are now reviewing the issues and views expressed in the responses and we will publish both a formal response and draft legislation later in the year," it stated.

"We will keep you updated on our progress in future newsletters."

Even as the consultation comes to a close, industry calls for the government to rethink its plans have continued to grow, with particular concerns raised over the potential burden on pension scheme administrators, despite support for the intent behind the policy.

Spencer West LLP private client partner, Hilesh Chavda, admitted that "it is difficult to argue with the calls for the Treasury to rethink how it imposes planned extensions of inheritance tax to retirement funds".

"Putting aside debates about the rights and wrongs of bringing pensions into the scope of IHT, the big issue is the administration," he continued.

"The proposed system is complex and requires a number of different people to be involved which will only create delays and further complexities in the release of these funds."

And industry organisations have been quick to highlight a number of alternative options.

The Pensions and Lifetime Savings Association (PLSA), for instance, suggested that the estate should be responsible for paying IHT, with twelve months from the date of death to settle before interest accrues, removing the pension scheme as an intermediary.

The PLSA explained that pension schemes could assist by providing guidance and calculations on inheritance tax, ensuring accuracy and preventing delays.

PLSA deputy director of policy, Joe Dabrowski, said: “We agree with the government’s overall ambition to bring pensions into scope for inheritance tax and welcome the 30-month lead time for implementation.

“However, we are concerned about the plan to make schemes act as tax administrators, a significant shift in responsibilities that could create unnecessary complexity and additional costs, putting schemes in a position they will struggle to manage while managing multiple regulatory pressures. This runs counter to the government’s growth objectives.

“To make these changes fair and practical, we urge HMRC to clarify how death-in-service payments and certain annuities will be treated, and shift tax calculation and reporting duties back to legal personal representatives, as they will have full view of the estate’s finances."

The Association for Consulting Actuaries (ACA) also said that a separate pensions inheritance tax regime should be considered, with ACA Pensions Taxation Committee chair, Kirsty Cotton, calling for "clearer and better" exemptions and processes for financial dependents and small pots.

“The proposed six-month deadline for paying the correct amount of inheritance tax (IHT) is unworkable for pension schemes," she said, continuing: "In practice, there are often material delays in death notifications where members left employment many years ago and not kept in active contact with their pension scheme.

"Trustees also need time to gather sufficient information to make appropriate discretionary decisions in what can be complex situations and where nominations are out of date.

“We have many practical concerns with the proposal that pension scheme administrators become responsible for paying a share of IHT determined by the personal representatives.

"Instead of attempting to integrate pension schemes into the IHT process, a simpler approach is required recognising that pension assets are fundamentally different from other financial assets.”

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