Personal representatives (PRs) are increasingly unaware of the full impact of changes to rules around inheritance tax, which will place greater responsibilities and liabilities on them at a time of bereavement, a report from the House of Lords has warned.
Scrutiny of the Finance Bill by the Economic Affairs Committee has resulted in the upper chamber raising concerns about the impact of changes to pension rules, which will see unused pension funds fall into the scope of inheritance tax (IHT).
The result, warned the committee, could be greater pressure placed on PRs – often family members and close friends – at an already stressful time. The committee also raised concerns over the timeliness of pension scheme administrators to provide information to enable IHT calculations, with the current six month window for IHT payment “incompatible with the timescales on which existing pensions processes operate.”
The report notes:
“Pension processes for identifying beneficiaries and administering death benefits often operate to much longer timelines, especially in complex family circumstances. Paying IHT due in the six-month deadline can already be a significant challenge for PRs, 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 PRs have acted diligently.”
PRs could become liable for IHT on assets they cannot access or have no control over, the report adds, increasing their personal risk and leading to both lay and professional PRs being unwilling to take on the role.
The committee recommends the introduction of delays to late payment interest, where PRs can provide evidence of efforts to meet deadlines and where for reasons outside of their control meant they couldn’t. An extension of the current six month payment deadline to 12 months should also be implemented, the committee said.
A “soft landing” of two years should be implemented to enable individuals and firms to adapt to the changes which come into effect from April 2027 without punishment, the report suggested, and a concerted effort should be made to better educate PRs.
The issue of liquidity stress was similarly raised in the Economic Affairs Committee’s response to changes to Agricultural Property Relief (APR) and Business Property Relief (BPR). Small businesses and farms are often asset rich but cash poor, the commitee said. Even where payment by instalments is available, there is a risk the timescales involved valuation, probate and the tight deadline for payments could create cashflow issues.
The new “cliff-edge” APR/BPR thresholds could “increase the risk of valuation disputes, resulting in delays and additional costs for estates, including potentially exposing estates to late payment interest,” the committee said. Extending the payment deadline to 12 months would alleviate some of the stress.
While the impact on farmers has been widely publicised, there is much less awareness amongst business owners, with urgent calls to improve the information surrounding the changes.
“The Government should publish and promote realistic worked examples of how these changes are likely to affect businesses and farms, to help individuals and their advisers work through the ramifications of the reforms. These examples should be published no later than the end of February 2026.”
The Lords also criticise the 18 month notice given which does not give sufficient time for proper planning.
Commenting on the report, 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 measures 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.”
Inheritance tax measures: unused pension funds and agricultural and business property reliefs
