A former Pensions Minister has launched a scathing attack on HMRC, labelling a planned inheritance tax crackdown as 'inhumane' and warning that UK households are facing a financial 'ticking clock'.
The Ticking Time Bomb for Families
Steve Webb, who served as a minister under both the Liberal Democrats and Conservatives and is now a partner at the consultancy LCP, issued the stark warning. He told the House of Lords Economic Affairs Committee that the reforms will pile extra pressure on grieving families and pension providers alike.
'This is already a difficult time for families, and they will now face a ticking clock of six months before interest and penalties could apply if IHT is not sorted out,' Mr Webb stated.
What is Changing with Pension Inheritance Tax?
The core of the issue is a significant shift in how leftover private pension pots are treated. Currently, if you have the most common type of discretionary private pension and die before using all the funds, the remaining money can typically be passed to your beneficiaries free from inheritance tax.
However, from 2027, this will change. The value of any leftover pension pot will be added to the total value of your estate for inheritance tax calculations.
Inheritance tax is charged at 40% on estates worth more than £325,000, or £500,000 if a home is left to children or grandchildren. By including pension pots, which can be worth tens or even hundreds of thousands of pounds, many more families will be pushed over these thresholds and face a substantial tax bill.
A Call for a More Humane System
Appearing alongside Alasdair Mayes, LCP's head of pensions and tax, Steve Webb submitted a joint statement urging the government inquiry to implement reforms that would create a 'more effective, efficient and frankly humane' process.
Webb explained a key logistical problem: 'Under the new rules, it's not clear assets can be paid until the whole process has been completed and the personal representative knows the value of all pension and non-pension assets and how these are to be split between exempt and non-exempt beneficiaries.'
The changes are already influencing behaviour. A recent survey found that nearly one in five savers aged 65 or above have started gifting money in response. Many are choosing to help family members with costs like university fees or house deposits now, simultaneously reducing the future value of their estate for tax purposes.
