Warning over death-in-service lump sums after inheritance tax change

An inheritance tax warning has been issued to grieving families off the back of the new Labour Party government's Budget. Grieving families have been warned they face challenges as the IHT levy needs to be paid before funds are released.

Around 49,000 estates per year which include pensions will face an inheritance tax bill, Government figures show. Steve Webb, a partner at pension consultants LCP, who used to be a Liberal Democrats Pensions Minister, has spoken out after Chancellor Rachel Reeves' Budget.

Sir Steve said: "‘Bereaved relatives already face huge challenges in winding up the financial affairs of a loved one, including delays in obtaining probate and the need to pay IHT bills before finances may become available. Including pensions within the scope of IHT will add greatly to the burden which families face."

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Households must pay IHT bills before securing probate and then obtaining probate itself can take many months. Sir Steve warned that the new process could lead to delays, including in the release of death-in-service lump sums.

Sir Steve warned: "People will need to know which pension schemes to contact, will have to rely on the efficient administration of pensions – with the whole process on hold until the slowest scheme has replied – and then potentially wait months more before death benefits and pension balances can be released by the scheme."

The pensions expert went on, saying in the wake of the Autumn Statement: "The whole thing could turn into a bureaucratic nightmare for grieving families. If this proposal is to go ahead, the Government will need to come up with a much more streamlined process than is currently proposed."

Chancellor Ms Reeves delivered her address in the Commons on Wednesday - after much speculation - and IHT changes were met with huge controversy, especially from farmers.