The Law Society of England and Wales has warned proposals in the Finance Bill could put personal representatives (PRs) at greater financial risk.
The warning echoes the concerns raised by the House of Lords Economic Affairs Committee at the end of last month, when it highlighted the “significant work” that remains to ensure the measures contained in the bill work in practice for PRs.
Writing in the Finance Bill Sub-Committee’s report following scrutiny of the bill, the Lords said they were “particularly concerned about the impact these changes will have on personal representatives administering an estate at a time of grief”.
They added:
“The practical issues created by bringing pensions into inheritance tax risk causing significant delays and costs. Moreover, many of those affected may be entirely unaware of how these changes will impact them.”
In the Law Society’s response to the draft legislation – which reforms inheritance tax, unused pension funds and death benefits – the organisation raises a number of concerns about the proposed responsibilities of PRs, including a lack of control over assets, liquidity challenges and unfair tax liabilities.
“PRs are taking on responsibilities for assets such as pensions or death benefits which they cannot control,” the Law Society pointed out in its response.
On liquidity challenges, the organisation explained:
“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.”
In relation to unfair tax liabilities, the Law Society said the responsibility to pay inheritance tax should apply based on where assets were held, adding:
“Making PRs responsible for tax on assets they do not control places them in a risky and potentially difficult position.”
PRs may also be reluctant to act, the Law Society said, with family or friends not wanting to take on the responsibility, or having to seek costly advice if things go wrong.
“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,” said Law Society vice president Brett Dixon.
“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.
“We are pleased that the House of Lord’s Finance Bill Subcommittee has listened to evidence from stakeholders, including the Law Society, and has recommended that the UK government consider approaches that better support and protect personal representatives.
“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.”
