The Labour Government has refused to extend the deadline for death duties due on pensions.
Bereaved families will only have six months in which to pay death duties due from pensions held in the name of the deceased.
The timing starts from the last day of the month in which the person died.
The House of Lords opposed the change. Peers called for a 12-month deadline.
They argued that more time would be needed for grieving families to locate pensions and deal with the admin processes of providers.
Bereaved families would also need at least twelve months to accurately calculate taxes due.
To quote from the Lords’ report,
“In many cases, the inheritance tax deadline to which personal representatives will be subject will be incompatible with the timescales on which existing pension processes operate.
It cannot be right to impose on taxpayers a timescale for payment of tax if that timescale is for many likely impossible to meet.”
More bad news
Not meeting the six-month deadline could be punitively expensive for the bereaved. That’s because they will face high-rate late-payment interest charges.
The standard interest rate will be 4 percentage points above base rate, but could be as high as 7.75% for complicated estates.
Previously, pensions were excluded from inheritance tax calculations, so assessing the tax due was much simpler.
Many financial experts expect this policy change to create headaches and delays for will executors. Those delays can increase the amount of an estate lost to taxation.
Among other problems foreseen is the risk of paying tax both upon inheritance and again when pension withdrawals are made by beneficiaries. It could lead to a situation of double taxation.
“Families could be taxed twice under the new death tax rules set to come into force next April. Retirement pots can only be passed on free of income tax when someone dies before age 75. If a saver is aged over 75 when they die, their beneficiaries are still going to have to pay their normal income tax rate of 20 per cent, 40 per cent or 45 per cent on pension withdrawals too. For a 45 per cent taxpayer, this represents a 67 per cent tax rate – and as withdrawals from the unused pension pot will be added to other income, some taking larger sums may find themselves tipped into this top tax band. It could go even higher in some instances, as the tapering of the residence nil rate band down to nothing on estates worth £2million-plus would mean an effective tax rate of 70.5 per cent.” This Is Money, 1st April 2026
These new taxation measures mean that the Government can rob both the living and the dead.
The hard-earned money of a deceased person could be decimated by the new tax measures.
This robs the deceased’s hopes and plans for their legacy.For beneficiaries, the losses will be financially tangible and no less devastating.
Take Action Now To Safeguard Your Legacy
To cut inheritance taxes, it’s vital to plan ahead and to work with an Estate Planning specialist. That’s where I can help. Contact me at 020 8364 6789 or email, [email protected] to discuss your plans. Best regards, Graham Martin