Inheritance Tax payment deadline must be extended

Chancellor Rachel Reeves should extend the six-month Inheritance Tax (IHT) payment deadline, according to a survey of accountancy professionals conducted by Mercia. Accountants fear delays are inevitable due to the extra work required due to changes announced in the Autumn Budget.

Nine out of ten respondents to Mercia’s survey of accountancy and tax professionals agreed that the payment deadline should be extended. The 2025 Spring Statement on 26 March gives Chancellor Rachel Reeves the opportunity to consider such an extension.

Fear delays

Changes made at the Budget mean that most unused pension funds and death benefits will be included within the value of a person’s estate for IHT purposes.

Pension Scheme Administrators (PSAs) are set to become liable for reporting and paying any IHT due on pensions to HMRC. However, pension providers currently work to a two-year rule for death benefits creating a mismatch with the IHT deadline.

IHT timescales

PSAs’ systems and processes are not currently set up for IHT timescales. The additional cost and time involved in settling of estates could leave the beneficiaries in a difficult situation at a vulnerable time following bereavement and potentially the risk of financial hardship for a period.

There’s also a risk that those who are not able to finalise the IHT position by the deadline of six months will end up with significantly higher bills as interest will then accrue.

From April 2025, individuals would also see interest accruing on the sum payable to HMRC at 8.75% as HMRC are increasing their rate to 4% above bank base rate.

Most impact

Mercia’s survey found that IHT on pension funds was having the most impact on their clients closely followed by the £1 million restriction on Agricultural Property Relief (APR) and Business Property Relief (BPR).

Accountants also told Mercia that the freezing of the nil rate and residence nil rate bands until 5 April 2030 is having an impact on their client portfolios.

However, the move to long-term residence criteria instead of domicile for worldwide IHT scope is having the least impact, according to respondents.

Almost two thirds (64%) of respondents agreed that farms should have a higher 100% allowance for APR/BPR compared to other businesses/companies while 95% said the £1 million combined APR/ BPR allowance should be transferrable between spouses.

In addition, over 70% of those surveyed agreed that there should be a ‘de minimis’ exclusion for unused pension funds at death with respondents suggesting that this should be at least £50,000.

Very difficult

Victoria Kelly, Managing Director at Mercia, said: ‘The results of our survey mirror feedback we’re hearing on our courses about the impact of these changes.

‘If they go ahead as planned, it will be very difficult to meet the deadline particularly considering the increasing complexity of probate.’

This Spring

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