Lords committee calls on government to rethink IHT reforms

Its report on the government's Draft Finance Bill 2025-26, published today (28 January), has warned that the government's IHT on pensions rules, due to come into force on 6 April next year, will place a ‘huge burden' on personal representatives (PRs).

The committee's report covered various measures relating to IHT, including reforms to the IHT treatment of unused pension funds and death benefits, as well as the reforms to agricultural and business property reliefs.

It also stated that one of the most significant issues raised during the committee's inquiry is the burden that will be placed on personal representatives (PRs) by the measure to reform the IHT treatment of unused pension funds and death benefits.

The report set out that the IHT deadline to which PRs will be subject will be "incompatible" with the current timescales which existing pensions processes operate.

The committee concluded that it was "not realistic" to expect PRs to be able to meet the statutory six-month deadline for payment of IHT in relation to pension assets.

It warned that many PRs will be at risk of finding themselves subject to late payment interest.

"It cannot be right to impose on taxpayers a timescale for payment of tax if that timescale is for many likely impossible to meet," the report stated.

The committee was also concerned that this measure could mean that PRs become liable for IHT on assets they cannot access or control, creating cashflow pressures and increasing the personal risk of acting as a PR, which the committee was warned may lead to both lay and professional PRs being unwilling to take on the role.

With the above in mind, the committee has called on the government to introduce a statutory safe harbour from late payment interest for PRs, where they can evidence that they took reasonable steps to try to meet those deadlines, but that the reason for not meeting the deadline was outside their control.

The committee also recommended that the six-month IHT payment deadline be extended to 12 months for IHT on pension assets for a transitional period, so that PRs have a "more realistic timeframe" to meet their IHT liability while pension scheme administrators update their processes.

Quilter head of retirement planning Jon Greer 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," he said. "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.

Greer added: "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."

This article is an edited version of a piece that first appeared on PP's sister title, www.professionaladviser.com.