The Finance Bill 2025-26 will bring most unused pension funds and death benefits within the scope of a person’s estate for inheritance tax purposes in 2027. Personal representatives (PRs)—executors and administrators—will be liable for reporting and paying any inheritance tax due on these funds and benefits.
The reform aims to tackle the use of pension schemes for tax avoidance purposes. In its report on the Bill last week, however, the House of Lords Finance Bill sub-committee recommended the payment deadline be extended from six to twelve months, and the government introduce safe-harbour periods for late interest payments where PRs are not at fault for missing deadlines. The sub-committee also urges the government to raise awareness of the reforms, produce practical guidance and support for those affected, and monitor the long-term impact, in its report, ‘Inheritance tax measures: unused pension funds and agricultural and business property reliefs’.
Lord Liddle, chair of the sub-committee, said: ‘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 peers’ concerns echo those raised by the Law Society last year when the Bill was published. It warned PRs would be responsible for assets such as pensions or death benefits, yet have no control over those assets, and could be liable for inheritance tax on assets that had already been spent or were difficult to recover. Moreover, family and friends may no longer want to act as PRs.
Law Society vice president Brett Dixon said this week: ‘We are pleased that the House of Lord’s Finance Bill Subcommittee has listened to evidence from stakeholders, including the Law Society.’
