A new report by the House of Lords Economic Affairs Finance Bill Sub-Committee has raised several 'significant issues' relating to the government's plan to bring pensions into inheritance tax from next year.
The committee’s report covers measures relating to the IHT treatment of unused pension funds and death benefits; and reforms to agricultural and business property reliefs (APR and BPR).
A key concern raised during the inquiry is the burden the pension reforms will place on personal representatives (PRs). The committee found that the statutory six-month deadline for paying IHT is often incompatible with existing pension administration timescales, making it unrealistic for many PRs to comply. As a result, many risk incurring late payment interest through no fault of their own, which the committee criticised as unfair.
The committee also warned that PRs may become liable for IHT on assets they cannot access or control, creating cashflow pressures and increasing the personal risk of acting in the role, which the committee was warned may lead to both lay and professional PRs being unwilling to take on the role.
To address these issues, the committee calls for a statutory safe harbour from late payment interest where PRs can demonstrate they took reasonable steps but were prevented from meeting deadlines by factors beyond their control. It also recommends extending the IHT payment deadline for pension assets from six to 12 months on a transitional basis while pension administrators update their processes.
Turning to the APR and BPR reforms, the committee concluded that administration is likely to become more complex for estates with qualifying assets, given the increased significance of valuations and the deadlines for paying any IHT due.
Liquidity pressures were a consistent concern, especially for small businesses and farms that are asset-rich but cash-poor. Even where instalment payments are available, witnesses warned that valuation challenges and the six-month deadline could force asset sales and harm future investment.
The committee also highlighted the risk of a generational divide: younger owners may have time to plan, while older and more vulnerable individuals face limited options, especially due to anti-forestalling provisions that restrict the use of lifetime gifting.
It therefore recommends extending the payment deadline to 12 months for estates with qualifying APR and BPR assets, and that the government monitor the cumulative impact of the reforms over seven years, particularly on farmers, family businesses and succession planning. The committee also urges the Government to consider how the death of a key person can affect business valuations for IHT purposes.
Finally, the report criticises the Government’s approach to consultation, noting that limited and late-stage engagement led to repeated changes to the measures and undermined effective policy development.
Lord Liddle, chair of the Finance Bill Sub-Committee, said: “Our inquiry focused on how the Government plans to implement these inheritance tax changes. While we were pleased to see the changes the Government made to these measures at Budget 2025, which address some of our concerns, significant work remains to ensure that these changes work in practice for personal representatives, businesses, and farms.
“We are particularly concerned about the impact these changes will have on personal representatives administering an estate at a time of grief. 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.
“Finally, a theme throughout our inquiry was the Government’s lack of proper consultation on these measures. The Government failed to listen to the concerns of stakeholders early on, resulting in late-stage changes and avoidable anxiety and costs for those affected. We want to ensure this doesn't happen again in the future.”
Jon Greer, head of retirement planning at Quilter, commented: “The Lords’ report rightly shines a light on a problem the government has so far underestimated. Asking personal representatives, often a family member or friend dealing with an estate for the first time, to identify, value and pay inheritance tax on pension assets within six months, frequently without having control over those assets or timely information from multiple scheme administrators, is a recipe for delay, confusion and unintended penalties.
"The call for a statutory safe harbour is sensible and long overdue. Executors who can demonstrate they have taken reasonable steps to comply should not be hit with interest charges simply because they are waiting on third parties to provide information or release funds. That would be deeply unfair and risks turning an already demanding role into a costly and stressful exercise.
"Extending the payment deadline to 12 months for pension assets during a transitional period would also reflect the reality of how estates are administered and give schemes time to update their processes.
"It is also crucial that the government learns the lessons from the chaotic implementation of the abolition of the lifetime allowance. If it is determined to press ahead with bringing pensions into the inheritance tax net, it must ensure both the policy design and the industry infrastructure are genuinely ready. If that requires a delay, then so be it. It is far better to have all the ducks in a row than to push through half-baked policy on the fly, with families, executors and advisers left to pick up the pieces."
