The government must make significant changes to new rules around the inclusion of pensions in inheritance tax to make them manageable for those administering estates, according to a damning report from the House of Lords Economic Affairs Committee.
The committee has called on the government to double the time allowed for personal representatives to pay inheritance tax (IHT), from six months to 12 months, to reflect the time it can take to obtain relevant information from pension scheme administrators.
The report also urged the government to publish guidance for those administering estates to help them understand their responsibilities and when tax is due, and to finalise its rules for information sharing between administrators and personal representatives.
“In many cases, the IHT deadline to which personal representatives will be subject will be incompatible with the timescales on which existing pensions processes operate,” the report stated.
“If the government is determined to press ahead with bringing pensions into [IHT], it must ensure the policy design and the industry infrastructure are genuinely ready.”
Jon Greer, Quilter
“Paying IHT 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 representatives have acted diligently.”
The tight deadline could also expose estates to tax bills on assets “they cannot access or control”, putting representatives under cashflow pressure and increasing the risk of inadvertently failing to comply, the committee said. Increased complexity also risked forcing bereaved families to take on more costs if they have to take professional advice.
Extension to ‘unworkable’ deadline needed
Pension and retirement experts welcomed the Lords’ report and echoed the call for government action.
Jon Greer, head of retirement planning at Quilter, said the current six-month deadline was “a recipe for delay, confusion and unintended penalties”, while Mark Plewes, head of pensions technical at WBR Group, described it as “unworkable”.
“At a time when millions are already under‑saving for retirement, measures that could further disincentivise pension saving are deeply concerning.”
Mark Plewes, WBR Group
Greer added: “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.”
Plewes said the existing proposals for bringing pensions into IHT scope “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,” Plewes added. “Pensions must remain a tool for long‑term financial security, not a tax trap.”
Kenny McCall, sales manager at wealth manager Utmost, said the Lords’ report was a “pragmatic response to the growing complexity of estate administration”.
He continued: “The introduction of the new pension death benefit rules from April 2027 will add further hurdles, as in many cases executors will need to identify and value pension pots held across multiple providers.”
Tax policy-making criticised
The Economic Affairs Committee also criticised the government’s approach to introducing the IHT changes, saying that “continued revision of these measures reflects underlying problems with the government’s approach to tax policy making, in particular in relation to its approach to consultation”. The committee reported that several witnesses had expressed concerns about the IHT changes, but “the government did not appear willing to engage”.
“With early, effective consultation within a clear policy framework, some of these issues, and indeed the need for later revisions, might have been avoided,” the committee’s report stated.
The IHT change, which was announced in chancellor Rachel Reeves’ first Budget in 2024, has been heavily criticised by multiple trade bodies for its complexity and the potential impact it could have on bereaved families.
Quilter’s Greer urged the government to take lessons from the “chaotic implementation of the abolition of the lifetime allowance”.
“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,” he said.
“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.”
