Planned inheritance tax changes could place an unmanageable burden on grieving relatives as the people responsible for dealing with estates after a death, says a new report from the House of Lords.
In the Draft Finance Bill 2025–26, the House of Lords Economic Affairs Finance Bill Sub-Committee says reforms to pensions and inheritance tax risk creating delays, extra costs and serious stress for families, professionals and businesses.
The committee focused on how the changes would work in practice, rather than whether the tax reforms themselves are justified.
Pensions changes clash with real-world timelines
One of the strongest warnings in the report concerns plans to bring unused pension funds and death benefits more firmly into the inheritance tax system.
Under current rules, inheritance tax is usually due within six months of death. But the committee says this deadline simply does not line up with how pension providers operate in the real world.
It concludes that it is not realistic to expect personal representatives – the people legally responsible for administering an estate – to meet the six-month deadline when pension assets are involved.
As a result, many could be hit with late payment interest, even when delays are completely outside their control.
The committee says it is wrong to impose a legal deadline for tax payments that many people will be unable to meet through no fault of their own.
Own a £4m farm, they will now pay £600k in inheritance tax. That tax will make retaining the farm unviable and the farm sold upon death to pay the inheritance bill.
We will see a huge reduction in agriculture output in the UK, generational farms closed and imports increased.— Stephen (@Stephen95H) October 30, 2024
Executors could be taxed on money they cannot access
Peers also raise concerns that personal representatives could become liable for inheritance tax on pension assets they cannot access, control or sell.
This could create major cashflow problems and significantly increase the personal risk of taking on the role, particularly at a time of bereavement.
The report warns this may discourage both lay people and professionals from acting as personal representatives at all.
To address this, the committee urges the Government to introduce a statutory safe harbour, protecting executors from late payment interest where they can show they took reasonable steps but were delayed by factors beyond their control.
It also recommends extending the inheritance tax payment deadline for pension assets from six months to 12 months, at least temporarily, while pension schemes update their systems.
Farms and family businesses face growing complexity
The report also examines reforms to agricultural property relief (APR) and business property relief (BPR).
The committee concludes that estates holding qualifying business or farming assets are likely to face greater administrative complexity, with valuations playing a much larger role in determining tax bills and deadlines.
A recurring theme in the evidence was liquidity pressure, particularly for farms and small businesses that may be asset-rich but cash-poor.
Even where inheritance tax can be paid in instalments, the combination of complex valuations, probate delays and the six-month payment deadline creates a real risk of financial strain.
Witnesses told the committee that businesses may be forced to sell assets simply to pay tax, potentially harming long-term investment and viability.
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Valuation issues and poor consultation criticised
Peers also raise concerns about how the death of a key person can affect the value of a business for inheritance tax purposes, urging the Government to review whether current rules properly reflect this reality.
The report strongly criticises the Government’s approach to consultation, saying stakeholders were engaged too late and too narrowly, leading to repeated changes and unnecessary uncertainty.
Lords warn of added stress at a time of grief
Lord Liddle, chair of the Finance Bill Sub-Committee, said the committee was particularly worried about the human impact of the changes.
He said that while some improvements were made at Budget 2025, major practical problems remain.
The report warns that bringing pensions into inheritance tax risks significant delays, extra costs and confusion, with many families unaware of how the changes will affect them until it is too late.
It concludes that better consultation and more realistic timelines are essential if the reforms are to work without causing unnecessary hardship for grieving families, businesses and farmers.
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