Personal representatives (PRs) are responsible for managing your estate when you die. However, changes to inheritance tax (IHT) will create more responsibilities and liabilities for them. The House of Lords is concerned about the impact of IHT on unused pension pots, farms and small businesses.
For family members and close friends acting as PRs, IHT changes could add significant stress during their time of bereavement.
Concerns about including unused pension pots in IHT
The first concern is how quickly pension scheme administrators can provide the information needed to work out IHT. Currently, PRs have six months to make IHT payments. The House of Lords says identifying beneficiaries and administering death benefits typically takes much longer. This is especially important when family circumstances are complicated.
In addition to all the other responsibilities for PRs, this will add further delays to grant of probate and payments to loved ones. There are also concerns about lack of notice and information to explain how the changes will work in practice.
The challenges of new IHT rules
PRs could become liable for IHT payments on assets they can’t access or control, adding personal financial risks. This could mean people become reluctant to take on the role.
The House of Lords committee reviewing the proposals suggests delays to interest charges for late IHT payments. This could apply where PRs can show they tried to meet deadlines but couldn’t, due to reasons outside their control. The proposal is for an extended 12-month payment deadline in these cases. A further suggestion is a two-year buffer for pension providers and professionals, allowing them to understand and implement the changes.
The committee has also raised concerns about Agricultural Property Relief (APR) and Business Property Relief (BPR). Small businesses and farms often hold physical assets but may not have cash to pay IHT. Despite changes to the threshold for 100% IHT relief on agricultural property and small businesses, this is still a concern.
Valuations, the probate process and tight deadlines for payments could damage cashflow. Even with an option for IHT payments by instalments, businesses and farms could cease operating.
Because of the large sums involved, valuation disputes could increase, creating further delays and extra costs. Again, interest on late payments could apply.
The impact of IHT changes on personal representatives
Many PRs may not know how these changes could affect them. They may lack control over an estate’s assets and cash to pay IHT bills and interest payments. If taxable assets are difficult to access and sell, they could face a long and stressful process.
Family or friends may not want the responsibility or may need to pay for professional advice. Making them responsible for tax on assets they don’t control places them in a difficult position.
You can help by making sure all your records are in good order and that your Will is clear.
Please give me a call if you would like to review your Will in anticipation of changes to Inheritance Tax.
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