Peers have warned that the Government’s intention to include pensions in the scope of inheritance tax could place an unrealistic burden on personal representatives.
In a report published on Wednesday, the House of Lords Economic Affairs Committee examined the practical and tax implications of the proposed inheritance tax reforms, which were first announced in the Autumn Budget 2024 and are due to come into effect in April 2027.
One of the most significant issues raised within the report is the burden that will be placed on personal representatives, particularly for bereaved families administering estates at a time of grief.
To tackle this issue, the Committee has called on the Government to temporarily extend the deadline for inheritance tax payment from six months to 12 months. It said that the current deadline is incompatible with the timescales on which existing pensions processes operate and would place personal representatives under an unrealistic burden.
The report stated: “While we were told that personal representatives will need timely and accurate information from pension scheme administrators in order to calculate and pay inheritance tax, pension processes for identifying beneficiaries and administering death benefits often operate to much longer timelines, especially in complex family circumstances.
“Paying inheritance tax due in the six-month deadline can already be a significant challenge for personal representatives and the misalignment with pensions timelines created by this measure risks delaying the grant of probate and payments to beneficiaries, as well as exposing estates to late payment interest even where personal representatives have acted diligently.”
The report stressed that the proposed measures could mean that personal representatives become liable for inheritance tax on assets they cannot access or control, creating cashflow pressures and potentially deterring both lay individuals and professionals from acting in that role.
The Committee also raised concerns that many personal representatives may not understand or appreciate the impact of the policy changes and may need to seek professional help to navigate the increased complexity.
As such, it says the Government should implement a ‘soft-landing’ period in which late payment interest and penalties will be suspended as the new rules bed in, for a minimum of two years.
Additionally, the Committee has recommended that the Government launch a communications campaign this year to inform people about the change in the inheritance tax treatment of pensions. The Committee also says that HM Revenue and Customs should publish step-by-step guidance for personal representatives to explain what they need to do if the estate they are administering includes a pension scheme.
The call for an extension to the inheritance tax deadline was welcomed by industry commentators.
Mark Plewes, head of pensions technical at WBR Group, said the move was “not only sensible, but urgently needed.”
“Whilst the proposed extension is on a temporary basis, we would call for a permanent amendment to be considered. The proposals already outlined by government risk creating an overly complex and burdensome system for pension scheme administrators and trustees, with little evidence they will deliver better outcomes for beneficiaries or HMRC.
“At a time when millions are already under‑saving for retirement, measures that could further disincentivise pension saving are deeply concerning. Pensions must remain a tool for long‑term financial security, not a tax trap.
“The proposed window for valuing pension assets is unworkable, particularly for schemes with discretionary death benefits or illiquid assets such as commercial property. These timelines simply do not reflect operational realities and we would urge the Government to reconsider on this point.”
Jon Greer, head of retirement planning at Quilter, echoed the sentiment, warning that the six-month deadline 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.”
Greer said the Government must also ensure infrastructure is ready for the policy changes when they come into force next year.
“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.”
The report also considered the proposed reforms to Agricultural Property Relief and Business Property Relief. It found that administration is likely to become more complex for estates with qualifying assets and could increase the risk of valuation disputes, resulting in delays and additional costs for estates.
Liquidity constraints were also likely to pose a problem, the Committee said, particularly for small businesses and farms that may be asset-rich but cash-poor. In addition to extending the deadline to 12 months for estates with qualifying APR and BPR assets, the Committee also urged the Government to monitor the cumulative impact of the measure over a seven-year period, particularly in relation to how the reforms affect farms and family business owners and their succession planning.
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