Longer payment window for inheritance tax needed, says Lords’ report
© Adobe Stock The deadline for paying inheritance tax should be extended to 12 months and the impact of the reforms monitored, a House of Lords report has recommended.
The Economic Affairs Finance Bill Sub-Committee’s report on the draft Finance Bill 2025-26 says that the government’s inheritance tax (IHT) rules will place a huge burden on personal representatives – the executors and adminstrators of estates.
This is due to them having to gather all the information needed and pay IHT due within six months of a death.
See also: IHT planning must include an all round review of assets
The deadlines and the increased significance of valuations mean that estates with qualifying assets will have to go through a much more complex process than is currently the case, at a time of grief for many, the report points out.
A large number of submissions were made to the committee, which found that even where payment by instalments is available, the combination of valuation complexity, probate sequencing and the six-month payment deadline creates a real risk of liquidity stress, particularly for small businesses and farms that may be asset-rich but cash-poor.
This puts future business investment at risk if assets have to be sold to fund IHT liabilities.
The committee called for a seven-year monitoring period to assess the cumulative impact of the measure, particularly in relation to how the reforms affect farmers and family business owners, and their succession planning.
Impact of a death on the value of a business
While valuations relate to an estate at the date of death, the committee wants the government to commission research into the impact of the death of a key person on the valuation.
This is with a view to considering whether further changes to IHT or to guidance are needed to deal with the situation where a death results in a business having a materially reduced valuation.
IHT on pension funds
Unused pension funds and death benefits fall into the IHT net from April 2027 – the report says the six-month payment timescale is incompatible with the timescales on which existing pensions processes operate, putting many personal representatives at risk of late payment interest charges.
The committee highlighted that personal representatives could become liable for IHT on assets they cannot access or control, creating cashflow pressures and increasing personal risk, as well as potentially making both lay people and professionals reluctant to take on the role.
These risks have led to a call in the report for the introduction of a statutory safe harbour from late payment interest for personal representatives, where they can show that they took reasonable steps to try to meet the deadlines but that the reason for not meeting the deadline was outside their control.
A pensions dashboard is to be created to help people see their pensions information, and to help find lost or forgotten pensions.
The report wants personal representatives to have access to the dashboard.
However, there is concern among accountants and other professional advisers that the dashboard may not be ready in time.
The committee looked only at tax administration, clarification and simplification arising from the IHT measures.
It did not consider the reforms, removal of reliefs and thresholds.
Increased costs and stress
The reforms will significantly add to the complexity of the valuation process and increase costs simply to determine whether, and how much, inheritance tax (IHT) is due, says the report.
This was a concern particularly for smaller farms and businesses, and it called on the government to ensure reforms to reliefs do not disproportionately increase administrative costs or impose undue compliance burdens on estates.
There is also likely to be a lack of valuers with the necessary skills and experience, while the committee also had doubts about the government resources to respond to the extra workload.
Commenting on the report, chartered financial planner Stuart Coombe, of Old Mill, says:
“Affairs are often complicated and while technically you don’t need a Royal Institution of Chartered Surveyors [RICS] Red Book valuation, it’s a sensible approach.
“But trying to get hold of a good RICS surveyor and get this done alongside everything else within six months is a real challenge.
“The House of Lords’ report made good comment on the fact that many personal representatives are not professionals and the deadline places unnecessary stress on them at a really bad time for people.”