Budget relief for personal representatives

What’s changed

The Finance Bill introduces two important tools for PRs.

• Withholding notice: PRs can force PSAs to hold back 50% of death benefits until the notice is withdrawn, the IHT bill is paid, or until 15 months after the end of the month of death.
• Direct payment: PRs can instruct PSAs to pay the pension-related IHT straight to HMRC.

These changes won’t remove the complexity, but they should help PRs ensure the right beneficiaries pay their fair share of IHT.

What’s still unclear

• Proof of authority: what evidence must PRs provide to the PSA to show they have authority? A will naming them as executor is straightforward, but letters of administration can take 12 weeks – and that’s after gathering information for the application. Different providers may have different requirements.
• Investment decisions: who manages withheld funds? Some providers may sell down to cash, which could mean a long time out of the market. If investments are held and values fall, the pot might not cover the IHT bill – especially if interest accrues.
• Scope of notices: PRs can act where they “have reason to believe they may be liable for tax attributable to notional pension property.” That’s a loose definition, so some professional estate practitioners may apply for withholding notices by default. Notices won’t apply to exempt beneficiaries like spouses.

Implications for advisers

IHT on pensions is coming – there’s no doubt about that. These changes may reduce the risk for PRs but they don’t remove complexity. Advisers should warn clients of potential delays to at least some death benefits being paid out if they aren’t going to a spouse or civil partner.