Full Breakdown
Concerns Over Inheritance Tax Changes and Pensions
1/28/2026, 10:56:27 PM
Overview of Proposed Changes
The UK government is set to include pensions in the scope of inheritance tax (IHT) starting April 2027, a significant shift from previous tax arrangements where pensions were excluded from taxable estates. This change, announced in Chancellor Rachel Reeves' 2024 Autumn Budget, aims to generate an estimated £1.5 billion annually for the government by 2030. However, the new policy has raised concerns among experts and lawmakers regarding its practical implications for families dealing with estates.
Challenges for Executors
The House of Lords Finance Bill committee has warned that the current six-month deadline for settling IHT bills is "unworkable," especially for estates that include pension assets. Executors, often family members or friends, may face difficulties in identifying, valuing, and paying taxes on these assets within the stipulated timeframe. Lord Roger Liddle, chair of the committee, emphasized that the mismatch between pension processing times and tax deadlines could lead to delays in probate, disrupt payments to beneficiaries, and expose estates to interest charges.
Industry experts, including Jon Greer from Quilter, echoed these concerns, stating that many executors may be handling such responsibilities for the first time during an already stressful period. The committee has recommended extending the payment window to one year and waiving interest charges for late payments when delays are beyond the control of the executors.
Criticism of Government Implementation
Critics argue that the government's approach to implementing these changes has been flawed. Mark Plewes, head of pensions at WBR Group, criticized the complexity of the proposed system, suggesting it could burden pension scheme administrators and trustees without improving outcomes for beneficiaries or HMRC. He called for the 12-month limit to become permanent, warning that the current plans risk disincentivizing pension saving at a time when many individuals are already under-saving for retirement.
Lord Liddle also highlighted the chaotic implementation of previous policies, such as the abolition of the lifetime allowance, and urged the government to ensure that both policy design and industry infrastructure are adequately prepared before proceeding with the changes.
Official Statements & Responses
The Treasury has been contacted for comment regarding the committee's recommendations and the concerns raised by experts. However, no formal response has been provided to date.
Verbatim Quotes
- “Asking a family member or friend dealing with an estate for the first time, to identify, value and pay inheritance tax 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.” — Jon Greer, Head of Retirement Planning at Quilter
- “The proposed window for valuing pension assets is unworkable, particularly for schemes with discretionary death benefits or illiquid assets such as commercial property.” — Mark Plewes, Head of Pensions at WBR Group
- “There's only a year to get these systems sorted. It's a huge problem as a lot of people have multiple pensions now.” — Lord Roger Liddle, Chair of the House of Lords Finance Bill Committee
Conclusion
As the UK government prepares to implement significant changes to inheritance tax regulations involving pensions, concerns about the practicality and fairness of these measures continue to mount. The House of Lords committee's recommendations for extending the payment window and addressing the complexities of the new system highlight the need for careful consideration to avoid placing undue burdens on bereaved families.
