Rachel Reeves has been warned that her proposed six-month deadline for paying inheritance tax on unused pension pots risks creating serious problems for families administering estates.
The House of Lords economic affairs committee called on ministers to extend the payment window to 12 months when new regulations take effect from April 2027.
In its report, the committee said a longer deadline would give personal representatives a realistic chance of meeting their legal obligations.
It said: “Extending the timeframe would mean diligent personal representatives have a more realistic opportunity to comply in the timeframe”.
The committee said the current proposals place an impractical burden on executors, particularly when pension providers operate on significantly longer administrative timescales.
Peers warned that the mismatch between pension processing and tax deadlines could delay probate, disrupt payments to beneficiaries and expose estates to interest charges.
The changes stem from Chancellor Rachel Reeves’ 2024 Autumn Budget, which confirmed that unused pension pots would be brought within the scope of inheritance tax from April 2027.
Under the plans, pensions will no longer fall outside inherited estates, marking a major shift in long-standing tax arrangements.
The policy change affects strategies commonly used by wealthier individuals, who have historically relied on pension savings to pass on wealth without incurring inheritance tax.
Peers urge Labour to extend payment window for estates
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Treasury estimates suggest the reform will raise £1.5billion a year for the Government by 2030.
Ministers initially proposed that pension providers would be responsible for paying any inheritance tax due on pension assets.
That approach was abandoned after what the Government described as overwhelming feedback from the pensions industry warning that the system would be unworkable.
In July, ministers confirmed that personal representatives would instead be responsible for reporting and paying inheritance tax on pension pots.
Lord Roger Liddle, a Labour peer who supports the policy’s overall objectives, told the committee that the revised approach still presents major practical risks.
Ministers urged to extend the payment window to 12 months
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GETTYLord Liddle said: “There are serious worries for people on the administration side”.
Sudden bereavements can leave executors scrambling to identify several pension schemes, sometimes with different personal representatives involved for separate beneficiaries, he said.
He said: “All of this might get quite messy and put individuals in a position where they can’t pay the tax on time and are liable for the very high rate of interest you have to pay on late tax”.
The committee noted that even under the existing rules, the six-month inheritance tax deadline already poses difficulties for many estates.
It warned that pension providers often take many months to confirm valuations or release information, leaving executors unable to calculate tax liabilities accurately.
Peers said this could result in estates being charged interest despite executors making reasonable and timely efforts to comply.
The report also raised concerns that personal representatives could become liable for tax on assets they do not yet control.
The committee said this creates cash flow pressures and increases the personal financial risk of acting as an executor.
These risks could discourage individuals from taking on the role, particularly when acting for bereaved family members.
It said uncertainty remains high, with further technical rules and secondary legislation still expected before the changes are implemented.
Lord Liddle said the timetable for preparing systems and guidance was already extremely tight.
Rachel Reeves delivered the changes in her first Budget
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He said: “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 Liddle criticised the Government’s approach to consultation, saying engagement with industry and professional bodies should have taken place earlier.
He said: “The Government produced a plan which they then had to change and they now have to change it again.”
He added that ministers had accepted the difficulties facing personal representatives, particularly family members dealing with grief while handling complex estate administration.
The Government has not yet responded formally to the committee’s recommendation to extend the inheritance tax payment deadline.
