Inheritance Tax Reforms Could Put Families at Financial Risk, Warns the Law Society

The Law Society has warned that government proposals set out in the Finance Bill to reform Inheritance Tax (IHT) could put members of a deceased person’s family at financial risk. The bill reforms IHT, unused pension funds and death benefits.

Concerns Raised by the Law Society

In its response to the draft legislation and a call for written and oral evidence last year, the Law Society raised concerns about the proposed responsibilities of personal representatives (PRs), also known as an executor/administrator.

Lack of Control Over Assets

PRs are taking on responsibilities for assets such as pensions or death benefits which they cannot control. This is because pensions do not form part of an estate, so you cannot leave your pension to anyone in your will. Pensions and death benefits are in a pension fund so they are controlled by the pension fund administrator or a private trustee.

Liquidity Challenges

If PRs are liable for IHT on these assets, they could face financial difficulties, especially if the assets have already been spent or are difficult to recover.

Reluctance to Act as PRs

family or friends may no longer want to act as PRs, or they may require costly advice if things go wrong. Professionals might not be willing to accept executorship appointments either.

Unfair Tax Liability

The responsibility to pay IHT should apply based on where assets are held. Making PRs responsible for tax on assets they do not control places them in a risky and potentially difficult position.

Statement from the Law Society

A Law Society spokesperson said:

“The death of a loved one is never easy, and managing their estate is an important process designed to distribute assets according to the individual’s wishes.
“The role of a personal representative – the person legally responsible for administering the estate of someone who has died – is extremely important.
“Inheritance tax should, wherever possible, be applied based on where it is held. Making personal representatives responsible for tax on assets they do not control, places them in a risky and potentially difficult position.
“It is essential that the government recognises the complexities personal representatives face when handling an estate and takes our recommendations into account as the Finance Bill progresses through Parliament.”

Need Expert Guidance on Inheritance Tax IHT and Estate Planning?

Your estate may be impacted by IHT if the total value of your assets, less any debts at the date of your death, is greater than £325,000. Our experienced Wills and Probate Team regularly advises clients on complex IHT matters, including how proposed legislative changes may affect estates and executors.

If you are concerned about how the latest inheritance tax reforms may affect your family or your role as a personal representative, contact our specialist IHT team for expert guidance.

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