The House of Lords (HoL) Economic Affairs Finance Bill Sub-Committee has urged the Government to make changes to its proposals bringing pensions into the scope of inheritance tax (IHT), particularly in relation to personal representatives (PR).

In a report exploring the impact of forthcoming IHT measures, the committee said one of the most significant issues was the burden that will be placed on PRs by bringing pensions into IHT from April 2027.

Under the Government’s proposals, PRs will need to obtain timely and accurate information from pension scheme administrators (PSA) to calculate and pay IHT within six months.

However, the committee warned that pension processes for identifying beneficiaries and administering death benefits often operated to much longer timeframes, with the six-month deadline risking delays and exposure to late payment interest.

Furthermore, the proposals could see PRs becoming liable for IHT on assets they cannot control or access, leading to increased personal risk, cashflow pressures, and lay and professional PRs being unwilling to take on the role.

The committee also raised concerns about the “significant” impact the policy could have on the pensions sector and pension saving more broadly, especially for those investing in defined contribution (DC) schemes due to the different impact of the measures on DC pensions compared to defined benefit (DB) schemes.

In light of these concerns, the committee urged the Government to take action to reduce the practical challenges that remain, particularly the challenges PRs and estates will face in finalising and paying IHT due to the six-month deadline.

It therefore called for the IHT payment deadline to be extended from six months to 12 months to give PRs a “more realistic” opportunity to comply with the deadline.

“We are particularly concerned about the impact these changes will have on PRs administering an estate at a time of grief,” commented Finance Bill Sub-Committee chair, Lord Liddle.

“The practical issues created by bringing pensions into IHT 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.”

AJ Bell head of public policy, Rachel Vahey, said: “The HoL sub-committee has hit the nail on the head.

“These new rules will prove to be an administrative nightmare for PRs – who are often family members appointed to work out what happens to someone’s estate when they die – at a time when they are at their most vulnerable.

“AJ Bell and the wider pensions and financial advice industry argued long and hard that there were far simpler and easier ways of achieving the policy and financial aims that would sidestep this distress.

“By creating a statutory safe harbour, those PRs who can show that they took reasonable steps to pay the IHT due but were stymied by circumstances beyond their control should be protected from late payment interest.

“Extending the IHT payment deadline from six months to 12 months would also help immensely. But this needs to be a permanent change for all IHT due, not a transitionary sticking plaster.”

Quilter head of retirement planning, Jon Greer, added: “The Lords’ report rightly shines a light on a problem the Government has so far underestimated.

“Asking PRs, often a family member or friend dealing with an estate for the first time, to identify, value and pay IHT on pension assets within six months, frequently without having control over those assets or timely information from multiple scheme administrators, is a recipe for delay, confusion and unintended penalties.

"The call for a statutory safe harbour is sensible and long overdue. 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."

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