Salvus warns advisers of Nest IHT risk

Salvus Master Trust has called on Nest to introduce an exemption from inheritance tax ahead of the lifting of its contribution cap, and warns advisers they could face recriminations for recommending the provider if the issue is not resolved.

Nest’s contribution cap will be lifted from £4,900 to £40,000 a year from April 2017, but unlike all other providers, assets held by the provider are currently not exempt from IHT charges of up to 40 per cent on death. Nest is offering a rate of 0.3 per cent annual charge and no contribution charge on transfers in.

Nest says the expense of offering IHT exemption for a small minority of members means it is currently not cost-effective to do so, but says it is keeping the issue under review.

Salvus says intermediaries could find themselves exposed to legal repercussions if individuals put large sums of money into Nest and subsequently incur IHT bills that would not have been incurred had another provider been selected.

Salvus Master Trust founder Steve Goddard says: “Nest is not a discretionary trust and death benefits paid to beneficiaries may be subject to IHT. Virtually all occupational schemes including master trusts operate as a discretionary trust and therefore would usually pay-out death benefits IHT free.

Salvus managing director Graham Peacock says: “It is completely inappropriate that members should face inheritance tax whilst using a DWP backed workplace pension. It completely flies in the face of industry-wide efforts to create an auto-enrolment landscape that is simple, transparent and trustworthy. While the likelihood is that many within the scheme will not amass enough to come under the tax’s scope, our concern is that hard working people could take advice to transfer into NEST in good faith from finance professionals and end up considerably worse off than they might have been under another scheme. We also feel it is crucial that all those recommending Nest as a workplace pension provider of choice are made aware of this unprecedented issue as a matter of urgency, if they are not to face recriminations in the future.”

Nest Executive director of product and marketing Gavin Perera-Betts says: “Nest’s approach to death benefits was designed to balance the needs of all our members. We know that IHT will impact a very small proportion of our membership and applying trustee discretion to all pots can be costly. That is why in the event of a member’s death their Nest pension pot is included in their estate for IHT purposes. That said, Nest regularly reviews our policies and processes. With the annual contribution limit and the restrictions on transfers into Nest lifting in April, we will continue to consider our policy in relation to member deaths to ensure that it continues to effectively balance the needs of our members.’