The House of Lords Economic Affairs Finance Bill Sub-Committee
has today published its report on the Government's Draft Finance
Bill 2025-26.
The committee's report covers measures relating to inheritance
tax (IHT): reforms to the IHT treatment of unused pension funds
and death benefits; and reforms to agricultural and business
property reliefs (APR and BPR). The committee only looked
at issues of tax administration, clarification and simplification
arising from these measures.
One of the most significant issues raised during the committee's
inquiry is the burden that will be placed on personal
representatives (PRs) by the measure to reform the IHT treatment
of unused pension funds and death benefits. In many cases, the
IHT deadline to which PRs will be subject will be incompatible
with the timescales on which existing pensions processes operate.
The committee concluded that it was not realistic to expect PRs
to be able to meet the statutory six-month deadline for payment
of IHT in relation to pension assets. Many PRs will be at risk of
finding themselves subject to late payment interest. It cannot be
right to impose on taxpayers a timescale for payment of tax if
that timescale is for many likely impossible to meet.
The committee was also concerned that this measure could mean
that PRs become liable for IHT on assets they cannot access or
control, creating cashflow pressures and increasing the personal
risk of acting as a PR, which the committee was warned may lead
to both lay and professional PRs being unwilling to take on the
role.
The committee calls on the Government to introduce a statutory
safe harbour from late payment interest for PRs, where they can
evidence that they took reasonable steps to try to meet those
deadlines, but that the reason for not meeting the deadline was
outside their control.
The committee also recommends that the six-month IHT payment
deadline be extended to 12 months for IHT on pension assets for a
transitional period, so that PRs have a more realistic timeframe
in which to meet their IHT liability while pension scheme
administrators update their processes.
In relation to the APR and BPR reforms, the committee concluded
that administration is likely to become more complex for estates
with qualifying assets, given the increased significance of
valuations and the deadlines for paying any IHT due.
Liquidity constraints were a recurring theme across the evidence
the committee received, particularly for small businesses and
farms that may be asset-rich but cash-poor. Even where payment by
instalments is available, the combination of valuation
complexity, probate sequencing and the six-month payment deadline
creates a material risk of liquidity stress, with witnesses
telling the committee about their concerns as to the impact this
could have on future business investment if there is a need to
sell assets to fund IHT liabilities.
The committee also heard that the reforms risk creating a
generational divide, as while younger farmers and business owners
should have time to take steps to mitigate the impact of the
reforms, the options for older and more vulnerable owners are
more limited, particularly given the anti-forestalling provisions
which further restricts their ability to make use of existing
lifetime gifting rules.
The committee recommends the Government extend the deadline to 12
months for estates with qualifying APR and BPR assets in order to
address the liquidity problems many of these estates will face.
The committee recommends that the Government monitor the
cumulative impact of the measure over a seven-year period,
particularly in relation to how the reforms affect farmers and
family business owners, and their succession planning.
The committee also raises concerns about the impact that the
death of a key person can have on how a business is valued for
IHT purposes, and recommend that the Government examine this
impact and consider how the IHT rules should reflect this.
The report also criticises the Government's approach to
consultation on both measures, and highlights the repeated
changes that the Government made to these measures as a result of
narrow and late-stage engagement with stakeholders.
, 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 changes 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.”
