Peers have warned that the government’s proposed inheritance tax reforms covering pensions could place an unrealistic and potentially unmanageable burden on personal representatives, creating widespread delays, cashflow pressures and legal risk for those administering estates.
In a report published today, the House of Lords Economic Affairs Finance Bill Sub-Committee examined the tax administration and practical implications of measures in the government’s Draft Finance Bill 2025–26. The inquiry focused on changes to the inheritance tax (IHT) treatment of unused pension funds and death benefits, alongside reforms to agricultural and business property reliefs.
One of the committee’s strongest criticisms relates to the decision to bring unused pension funds within the scope of IHT while retaining the existing six-month deadline for payment. Peers concluded that it is “not realistic” to expect personal representatives to meet that deadline, given how long pension scheme administrators typically take to provide valuations and release information.
The report warns that many personal representatives are likely to incur late payment interest through no fault of their own, because pension assets are often inaccessible within the statutory timeframe.
“It cannot be right to impose a timescale for payment of tax if that timescale is, for many, impossible to meet,” the committee said.
Peers also raised concerns that personal representatives could become liable for IHT on pension assets they neither control nor can access, creating significant cashflow strain. The report cautions that this could deter both lay individuals and professionals from acting as personal representatives, increasing costs and delays for bereaved families.
To address these risks, the committee has called on the government to introduce a statutory “safe harbour” protecting personal representatives from late payment interest where they can demonstrate that reasonable steps were taken to meet the deadline but delays were outside their control. It also recommends extending the six-month IHT payment deadline to 12 months for pension assets during a transitional period, allowing pension administrators time to update their processes.
The report also examines the proposed reforms to Agricultural Property Relief (APR) and Business Property Relief (BPR), warning that these changes are likely to increase administrative complexity and exacerbate liquidity problems for estates.
Witnesses told the committee that many farms and family businesses are asset-rich but cash-poor, meaning that even where instalment options exist, the interaction between valuations, probate sequencing and tight payment deadlines could force asset sales to meet tax liabilities. Peers warned this could undermine future business investment and succession planning.
The committee also heard concerns that the reforms risk creating a generational divide. While younger farmers and business owners may have time to adapt, older or more vulnerable owners have limited options, particularly due to anti-forestalling provisions that restrict the use of lifetime gifting.
As a result, the committee recommends extending the IHT payment deadline to 12 months for estates with qualifying APR and BPR assets, and urges the government to monitor the cumulative impact of the reforms over a seven-year period, especially on farmers and family-owned businesses.
Further concerns were raised about how the death of a key individual can affect business valuations for IHT purposes. The committee said the government should review how valuation rules reflect the loss of a key person and consider whether the current framework remains appropriate.
Peers were also critical of the government’s consultation process, saying the repeated late-stage changes to the proposals were the result of narrow and insufficient engagement with stakeholders, causing unnecessary anxiety and cost.
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 welcomed some of the adjustments made at Budget 2025, significant work remains to ensure these measures function in practice for personal representatives, businesses and farms.”
He added that the committee was particularly concerned about the impact on personal representatives dealing with estates during periods of grief.
“Bringing pensions into inheritance tax risks creating significant delays and additional costs, and many of those affected may be entirely unaware of how these changes will impact them,” he said. “A recurring theme throughout our inquiry was the lack of proper consultation. We want to ensure this does not happen again.”
The report now places pressure on ministers to rethink the practical implementation of the reforms before the legislation is finalised, amid growing concern that well-intentioned tax changes could create serious unintended consequences for families, businesses and the professionals tasked with administering estates.
