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

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.

The concerns included:

• 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 inheritance tax on these assets, they could face financial difficulties, especially if the assets have already been spent or are difficult to recover.

• reluctance to act: 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 inheritance tax 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.

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.”

We shall keep clients informed of developments.

Please contact us if you would like more information about the issues raised in this article or any aspect of wills and probate, and inheritance planning.