The Estate Registry (TER) has backed calls from the House of Lords to change the rules governing the payment of Inheritance Tax (IHT).
Peers have argued that the current system is outdated, overly complex, and increasingly misaligned with modern patterns of wealth, family life and economic behaviour.
The recommendation follows extensive scrutiny by the Lords, who concluded that reform is necessary to ensure the tax remains fair, transparent and fit for purpose.
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Inheritance Tax is currently charged at 40% on estates above a £325,000 threshold, with additional allowances available in certain circumstances, including the residence nil-rate band. While originally designed to tax large accumulations of wealth, the House of Lords Economic Affairs Finance Bill sub committee has highlighted that the tax now affects a broader group of families, often in ways that appear inconsistent or difficult to justify.
Howard Enders, chief operating officer at The Estate Registry (pictured) says:
“IHT has become one of the most complex and poorly-understood elements of the UK tax system. Over time, successive policy adjustments, exemptions and reliefs have created a framework that is difficult for taxpayers to navigate and costly to administer.
“As a result, many families face uncertainty and distress at a time of bereavement, while others are able to minimise or avoid liability through planning strategies that are not equally accessible to all.”
Peers have expressed concern that the current rules on when and how Inheritance Tax is paid can place an undue burden on estates that are asset-rich but cash-poor.
In particular, families inheriting property or businesses may struggle to meet tax liabilities within required timeframes, sometimes forcing the sale of long-held assets. The House of Lords argues that this outcome undermines the original intent of the tax and risks damaging family businesses, farms and local economies.
Their recommendation also reflects concern about the perceived unfairness of the existing system. Evidence considered by the Lords suggests that IHT is unevenly applied, with similar estates facing very different tax outcomes depending on how wealth is structured rather than its overall value.
Reliefs for certain asset classes, such as business or agricultural property, while designed to support economic activity, can distort behaviour and incentivise tax planning rather than productive investment.
In addition, the House of Lords committee has noted that rising property values have brought more estates into the scope of Inheritance Tax, particularly in London and the south east of England.
Many families now face tax liabilities not because they are exceptionally wealthy, but because their main residence has increased in value over time. Peers argue that this trend has weakened public confidence in the fairness of the tax and strengthened the case for reform.
The recommended change in the rules on paying Inheritance Tax is intended to address these concerns by simplifying the system and making outcomes more predictable. The Lords have emphasised the importance of clarity, arguing that taxpayers should be able to understand their likely liability without needing extensive professional advice. A clearer framework, they suggest, would reduce administrative costs for both families and HM Revenue & Customs.
Enders adds:
“The House of Lords has highlighted evidence that Inheritance Tax can influence behaviour in ways that are economically unproductive, such as encouraging individuals to hold onto assets purely for tax reasons or to engage in complex avoidance strategies.
“Reforming the rules on payment could reduce these distortions and ensure that the tax raises revenue with fewer unintended consequences.”
Peers have also drawn attention to international comparisons, noting that several comparable countries have reformed or replaced their inheritance-based taxes to better reflect modern economic realities. While the House of Lords has not advocated for the abolition of Inheritance Tax, it has made clear that reform is necessary if the tax is to command long-term public support.
‘Importantly’, Enders concludes, “The recommendation recognises the emotional and practical impact of Inheritance Tax on grieving families. The House of Lords has stressed that the process of settling an estate should be as straightforward and humane as possible.
“Changes to the rules on paying the tax, including greater flexibility in timing and method of payment, could ease pressure on families at a difficult moment and reduce the risk of financial hardship.”
This article was submitted by The Estate Registry as part of an advertising agreement with Today’s Wills and Probate. The views expressed in this article are those of the submitter and not those of Today’s Wills and Probate.
