Lords report concludes that the Government’s pensions inheritance tax rules will place a huge burden on personal representatives
The House of Lords Economic Affairs Finance Bill Sub-Committee has today published its report on the Government’s Draft Finance Bill 2025-26.
The committee’s report covers measures relating to inheritance tax (IHT): reforms to the IHT treatment of unused pension funds and death benefits; and reforms to agricultural and business property reliefs (APR and BPR). The committee only looked at issues of tax administration, clarification and simplification arising from these measures.
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. In many cases, the IHT deadline to which PRs will be subject will be incompatible with the timescales on 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. 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 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.
The committee calls 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 recommends 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 in which to meet their IHT liability while pension scheme administrators update their processes.
In relation 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 constraints were a recurring theme across the evidence the committee received, particularly for small businesses and farms that may be asset-rich but cash-poor. Even where payment by instalments is available, the combination of valuation complexity, probate sequencing and the six-month payment deadline creates a material risk of liquidity stress, with witnesses telling the committee about their concerns as to the impact this could have on future business investment if there is a need to sell assets to fund IHT liabilities.
The committee also heard that the reforms risk creating a generational divide, as while younger farmers and business owners should have time to take steps to mitigate the impact of the reforms, the options for older and more vulnerable owners are more limited, particularly given the anti-forestalling provisions which further restricts their ability to make use of existing lifetime gifting rules.
The committee recommends the Government extend the deadline to 12 months for estates with qualifying APR and BPR assets in order to address the liquidity problems many of these estates will face.
The committee recommends that the Government monitor the cumulative impact of the measure over a seven-year period, particularly in relation to how the reforms affect farmers and family business owners, and their succession planning.
The committee also raises concerns about the impact that the death of a key person can have on how a business is valued for IHT purposes, and recommend that the Government examine this impact and consider how the IHT rules should reflect this.
The report also criticises the Government’s approach to consultation on both measures, and highlights the repeated changes that the Government made to these measures as a result of narrow and late-stage engagement with stakeholders.
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.”
Subscribe to the Citywealth Weekly Newsletter to learn more about Private Wealth Management.
Read more:
Top 100 International Private Client Litigation Lawyers 2022 | Citywealth News
Maurice Turnor Gardner Relocates to Tea Auction House
Maurice Turnor Gardner promotes three to Counsel
Entrepreneur profile: Matt Roberts, Personal Trainer to the stars | Citywealth News
Magic Circle Awards 2025 | Citywealth Awards Results
Citywealth Top 50 Private Client and Family Legal Heroes 2022 | Citywealth News
Italy’s Crypto Tax Hike to 33% in 2026: Implications for UHNW Portfolios
Italy’s decision to increase the tax rate on cryptocurrency gains to 33 percent from 2026 marks a significant shift in how digital assets are treated within the private wealth framework.
US Wealth Migration to Italy Surges: Flat Tax Regime rise, Trust Challenges and Forced Heirship Risks in 2026
Italy has attracted growing numbers of high-net-worth individuals and families relocating from abroad, including a significant and ongoing proportion from the United States.