Government refuses to give families more time to pay inheritance tax on pensions
Calls to double the amount of time families have to pay inheritance tax when pensions are included from next April have been rejected by the government
Marc Shoffman
Recommendations to extend the amount of time families have to pay inheritance tax bills once pensions are included from next April have been dismissed by the government.
The government’s incoming pensions inheritance tax rules will place a “huge burden” on those left to pay the bill, a report from a group of Lords said in January. It called on the government to double how long families have to settle inheritance tax (IHT) bills in cases where pensions, family businesses and farms are involved, from six months to a year.
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Burden on personal representatives
Peers on the House of Lords Economic Affairs Finance Bill Sub-Committee scrutinised measures relating to inheritance tax and unused pension funds – which will be subject to IHT from April 2027 – as well as reforms to agricultural and business property reliefs (APR and BPR).
One of the most significant issues raised during the committee’s inquiry was the administrative and potentially financial burden that will be placed on personal representatives – typically the administrator or executor of an estate, often a family member, sometimes in conjunction with a solicitor – by the measure to include unused pension funds in inheritance tax calculations. In many cases, the deadline to pay the inheritance tax bill will be too short for the timescales on which existing pensions processes operate, the committee's report said.
It was “not realistic” to expect personal representatives to be able to meet the statutory six-month deadline for payment of inheritance tax in relation to pension assets, it added. Many personal representatives will be at risk of finding themselves subject to late payment interest, it said, adding: “It cannot be right to impose on taxpayers a timescale for payment of tax if that timescale is for many likely impossible to meet.”
The planned rules could mean personal representatives become liable for inheritance tax on assets they can’t access or control, the report said, creating cashflow issues as well as deterring people – professionals and lay people alike – from taking on the role.
We explain how to navigate the inheritance tax paperwork maze in a separate guide.
How much are HMRC late payment charges?
HMRC charges interest on any tax paid late. In April 2025, the late payment interest was raised to 4% above the Bank of England base rate. Currently this means the rate is 7.75%, but it has been as high as 8.5% in the past 12 months.
Late payment interest will be due on any late payments of IHT, and personal representatives are responsible for paying any IHT due by the end of the sixth month after the month of death.
“So, it’s essential that PRs take steps to ensure that IHT is paid on time to stop late payment interest from building up,” said Vahey from AJ Bell.
Taxpayers can get their fees and charges waived, but only if they meet a certain list of excuses from HMRC. Simply not knowing that you needed to pay IHT or not understanding how to do it are not qualifying reasons. Only ‘reasonable excuses’ such as serious illness, bereavement or unforeseeable events, like computers not working, will pass muster.
From April 2027, personal representatives will encounter additional challenges by having to include pensions in the estate when working out IHT due. “They will be reliant on each pension scheme the deceased was a member of telling them the value of the pension, to allow the PRs to work out the IHT due on each scheme,” Vahey pointed out.
They may then be able to ask the pension scheme to put a hold on to 50% of payments being made to the beneficiaries -- as a buffer for any IHT due. They could then tell the pension scheme to pay the IHT in respect of that pension, and the scheme has five weeks to do that. Vahey said: “Personal representatives will therefore need to be aware of these timescales and plan accordingly.”
APR and BPR reform problems
In relation to the APR and BPR reforms, the Lords committee concluded dealing with estates is “likely to become more complex”, given the increased significance of valuations and the deadlines for paying any IHT due. Issues with being unable to pay on time within the six-month window were flagged repeatedly in evidence given to the Lords’ committee, particularly for small businesses and farms that may be asset-rich but cash-poor, even where payment by instalments is available.
The committee recommended the government also extend the deadline to 12 months for estates with qualifying APR and BPR assets in order to address the liquidity problems many of these estates will face. However, the government also rejected this proposal in its letter of response.
The government's IHT pension reforms explained
The Finance Act 2026 received Royal Assent on 18 March, making it law. Under the new law, a pension will count towards the value of an estate for IHT from April 2027.
This creates plenty of financial planning challenges but will also make it harder for people tasked with administering an estate and ensuring beneficiaries get money or assets that have been left to them.
Under the changes, a personal representative, typically the administrator or executor of an estate, will be responsible for collecting information on pension values to pay any inheritance tax owed.
Personal representatives have always been responsible for valuing an estate and ensuring any owed inheritance tax is paid.
But the House of Lords inquiry has heard warnings that including pensions in an estate raises new complications.
Steve Webb, former pension minister and now partner at pension consultancy LCP, told the MoneyWeek podcast he fears the burden of ‘sadmin’ – sad admin after someone has died – will become ever worse once the new pension inheritance tax rules come in from April 2027.
“Sadmin is the whole hassle of [when] someone has died and you now have to deal with all the paperwork. Once pensions are in [subject to IHT], the hassle, the admin, the delay that is going to cause is just going to be misery for people who may at the end of all that, not have to pay any inheritance tax.”
The six-month IHT rule
Currently, any inheritance tax owed on an estate must be paid within six months of the person dying or there will be charges of 7.5% (4% plus the Base Rate) on the money owed.
Ian Bond, member of the wills and equity committee at the Law Society, said that timetable is already short before you have to factor in finding pension information.
He said: “People rarely die tidily and things are not always in the best of order.
“Many don’t just have one pension and the onus is on personal representatives to find them.
“The IHT clock starts ticking as soon as someone dies. Interest rates will apply if IHT isn’t paid six months after death. That is short as it is but layering pensions on top of that makes it incredibly difficult.
“The government proposals for pension schemes sharing information are welcome but there is no detail on what administrators are going to provide to us.
"It needs to be standardised and frailty sharpish so we don’t end up delaying the administration of estates.”
Inheritance delays for families
There are also warnings that advisers to executors could be reluctant to allow money to be distributed due to uncertainty regarding pension valuations and reliefs, such as if money is going to a spouse.
There may also be conflicts where an executor is acting for beneficiaries of an estate that may be different to the beneficiary of a pension.
John McArthur, a partner at the law firm Gillespie Macandrew, who is a member of the Society of Trust and Estate Practitioners, said this could make it “almost impossible to complete an estate”.
He said advisers to executors will want to be clear that there is no more inheritance tax liability, which can cause delays and make it harder for beneficiaries who are already going through the grieving process.
John Bunker, consultant solicitor and chartered tax adviser at Irwin Mitchell, representing the Chartered Institute of Taxation, added that professional representatives may be deterred from the industry due to fears of incorrect valuations, which means families could miss out on advice and ultimately assets that could be owed to them.
Similarly, Bond warned that professional representatives may not want to be liable for inheritance tax on pensions, which is an asset they don’t control.
Delays for the taxman
Without a market for professional representatives, Bunker warns that there will be delays in estates getting resolved and ultimately tax being paid.
He said: “HMRC will end up with loss of tax revenue.
“There will be delays in getting tax and HMRC will need to deal with laypeople or solicitors where there is no professional to act as executor.
“All those things create problems.”
