A House of Lords committee has urged the government to extend inheritance tax payment deadlines after warning that plans to bring unused pension funds and death benefits within the scope of inheritance tax could impose unworkable administrative burdens on estate administrators.
In a report on the draft finance bill 2025-26, the House of Lords' economic affairs finance bill sub-committee said it was “not realistic” to expect personal representatives to meet the statutory six-month deadline for paying inheritance tax on unused pension funds and death benefits.
The report concluded that existing pension processes are unlikely to operate within the timeframe required to calculate and settle inheritance tax liabilities, leaving personal representatives exposed to late payment interest through no fault of their own. In many cases, it said, representatives could be required to pay tax on assets they cannot access or control, creating cashflow pressures and increasing the personal risk associated with acting in the role.
The committee called on the government to introduce a statutory “safe harbour” from late payment interest where representatives can demonstrate they took reasonable steps to meet the deadline but were prevented from doing so by factors outside their control. As a transitional measure, the committee recommended extending the inheritance tax payment deadline on pension assets from six to 12 months, giving pension scheme administrators time to update their systems and processes.
Lord Liddle, chair of the finance bill sub-committee, said the inquiry focused on how the changes would work in practice. “We are particularly concerned about the impact these changes will have on personal representatives administering an estate at a time of grief,” he said. “The practical issues created by bringing pensions into inheritance tax risk causing significant delays and costs.”
The report also examined reforms to agricultural property relief and business property relief, concluding that administration is likely to become more complex for estates holding qualifying assets. Valuations are expected to take on greater significance, while existing inheritance tax deadlines may intensify liquidity pressures.
Evidence heard by the committee repeatedly highlighted the position of small businesses and farms that are asset-rich but cash-poor. Even where payment by instalments is available, witnesses raised concerns that the interaction between valuation complexity, probate sequencing and the six-month payment deadline could force asset sales to meet tax liabilities, potentially affecting future investment.
The report was also critical of the government’s approach to consultation, pointing to repeated late-stage changes following narrow engagement with stakeholders. Liddle said the government “failed to listen to the concerns of stakeholders early on”, resulting in avoidable uncertainty and costs, and added that the committee wanted to ensure a similar approach was not repeated in future tax reforms.