Wednesday 28 January 2026 11:07 am
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Lords have warned the IHT deadline is to tight
The UK government has set an unrealistic deadline for inheritance tax payments on unused pensions, a House of Lords committee has warned.
The House of Lords economic affairs committee urged the government to extend the deadline for pension fund personal representatives, who are typically estate executors, from six months to 12 months.
The committee argued the extension should be put in place when the new rules apply from April 2027 because changes to the way inheritance tax is calculated on pensions, small businesses and farms makes the deadline too tight for families.
The committee also argued for the taxman to waive interest on late payments in instances where a family can prove delays were beyond their control.
Chair of the committee, Lord Liddle, said: “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.”
The report argued that prolonging the deadline would mean “diligent PRs have a more realistic opportunity to comply in the timeframe”.
Rachel Vahey, head of public policy at AJ Bell, said: “The House of Lords sub-committee has hit the nail on the head.
“These new rules will prove to be an administrative nightmare for Personal Representatives, 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.
“HMRC should be listening to the House of Lords’ recommendations to improve the new rules.”
IHT changes
Concerns first arose following Chancellor Rachel Reeves’ maiden Autumn Budget in 2024, where it was announced that pension funds would become a part of someone’s taxable estate from 6 April 2027.
The decision means pensions will be counted among the £325,000 of assets that can be passed on tax-free, with anything above this amount subjected to 40 per cent tax.
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While this was a heavy blow to the financial planning of wealthier Brits, it is expected to raise £1.5bn to the Treasury by 2030.
The responsibility to pay tax originally was in the hands of pension providers, but the industry warned this approach was impractical, leading the government to announce in July that personal representatives would be in charge.
The report argued the six month deadline would create “cash flow pressures” and increase “the personal risk” of acting as a representative due to them being liable for inheritance tax on assets they cannot access or control.
It also argued that pension firms can take longer than six months to locate and identify pots and grant them to beneficiaries, particularly in complex family situations.
It means families could be hit with interest charges of 7.75 per cent a year on late payments to HMRC.
The government is finalising the technical details and further regulations are expected, creating uncertainty over how the implementation of the rules will work.
Have the right documents prepared
Drawing up a will, a legal document that outlines how a person’s assets, property and possessions will be distributed after death, dictates wishes.
Failing to do so means distributions may not mirror personal wishes.
Andy Gillett, director and head of wealth management advice at BRI Wealth management, also noted the importance of having a nominee of your pension in place when applicable.
He said: “It is extremely important to have a nomination in place as to whom you would like to inherit your pension. With the regular changes to pension legislation and the death benefits changing at age 75, it is important to continuously review this nomination.”
Ensuring all passwords are up to date and in a secure location for loved ones can also ease the process by providing quick access, while making sure all documentation, especially around property ownership, is in order can also smooth the process.
Gillett said: “Make a list of any investments, bank accounts, pensions or life assurance with company names and policy or contract numbers. This will help your executors track down assets and obtain details easily for probate.”
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