The Economic Affairs Committee of the House of Lords has published a report on the government’s reforms to: 

• the IHT treatment of unused pension funds and death benefits; and 
• agricultural property relief (APR) and business property relief (BPR) for IHT. 

The report focuses on “issues of tax administration, clarification and simplification” arising from the measures. It also considers the government’s paper Tax Policy Making Principles, published in June 2025.  

Legislation providing for the reforms is included in the Finance Bill 2025-26. ICAEW’s TAXguide 05/25 provides a summary of the changes and links to further information, including Finance Bill documents. 

Main findings 

Although the House of Lords welcomes the changes the government has made to the measures since they were first announced at the Autumn Budget 2024, it continues to have concerns about what the reforms will mean in practice.  

Key concerns include that: 

• For IHT on pensions assets:
  • the IHT deadline for personal representatives (PRs) “will be incompatible with the timescales on which existing pensions processes operate”, potentially delaying the grant of probate and exposing estates to late payment interest; and
  • PRs could “become liable for IHT on assets they cannot access or control, creating cashflow pressures and increasing the personal risk of acting as a PR”.

• For the APR and BPR reforms:
  • the increase in significance of valuations will make administration for estates with qualifying assets more complex, increasing costs and causing delays; and
  • “liquidity constraints” for smaller businesses and farms that are “asset-rich but cash-poor” may reduce future business investment or require the sale of business assets.

Further, the House of Lords is concerned that the need to make changes to the measures “reflects underlying problems with the Government’s approach to tax policy making”, and that some of the issues with the measures could have been avoided “with early, effective consultation within a clear policy framework”.  

Recommendations 

A key recommendation for the government is to consider extending the deadline for paying IHT from six months to 12 months where:

• the IHT is due on unused pension funds. This would be a temporary extension to give personal representatives “a more realistic opportunity to comply in the timeframe”; or
• the estate has assets qualifying for APR/BPR. The House of Lords believes this is necessary in order to address the liquidity problems those estates may otherwise face. 

Other recommendations include:  

• For IHT on pensions assets:
  • Introducing a statutory freeze on late payment interest for PRs where they can show they took reasonable steps to meet the payment deadline but were unable to due to circumstances outside of their control;
  • “timely finalisation” of the regulations for information-sharing between pension scheme administrators (PSAs) and PRs; and
  • making the Tell Us Once Service for notifying bereavements available to PSAs and the Pensions Dashboard available to PRs.
• For APR/BPR, monitoring the cumulative impact of the measure over a seven-year period and taking the appropriate action at that point.

ICAEW’s role 

The publication of the report follows an inquiry by the House of Lords. ICAEW gave written and oral evidence to the inquiry and is quoted extensively in the report.