A House of Lords committee has delivered a stinging critique of the government’s proposals to bring unused pension funds within the scope of Inheritance Tax (IHT). Examining the legislation within the current Finance Bill, the Economic Affairs sub-committee noted that “significant work remains” to ensure these measures are functional for those managing deceased estates.
The Call for More Time and Clarity
In their report published in late January, the sub-committee highlighted that the proposed timeline may be unrealistic. They recommended that the standard six-month IHT payment deadline be extended to 12 months for pension assets during a transitional period. This would allow pension scheme administrators the necessary time to overhaul their internal processes.
Furthermore, the Lords were firm on the implementation date: unless final regulations and guidance regarding information sharing are ready by April 2026, they believe it is neither “sensible nor appropriate” to launch the changes in April 2027.
The Challenge of Identifying Pension Assets
One of the most practical hurdles identified is the difficulty executors face when tracking down a deceased person’s pension pots. The sub-committee pointed out that identifying these assets is already a challenge during a person’s lifetime; on death, the task becomes significantly harder for Personal Representatives (PRs).
The report noted that the long-awaited Pensions Dashboard, in its current design, will not grant access to PRs, nor will it initially include pensions already in income drawdown. This creates a significant “blind spot” for those trying to calculate the total value of an estate.
Closing the Awareness Gap
Their Lordships also observed a “low level of awareness” regarding these seismic shifts in tax treatment. They have urged the government to launch a formal awareness campaign to help individuals make informed decisions about their future.
The report also flagged that the treatment of dependants’ pensions varies wildly between different schemes. The committee argued that this inconsistency goes “beyond the stated objective of stopping the use of pensions for tax planning,” potentially penalising families unfairly.
Prepare Your Estate for 2027
Given the government’s recent reluctance to perform U-turns on tax reform, these changes are likely to proceed in some form. If you hold a pension plan, it is vital to review your estate planning strategy before the April 2027 deadline to ensure your beneficiaries are protected.
At Chartwell Wealth Management, we specialise in navigating complex tax landscapes and helping you build a robust financial legacy. To discuss how these upcoming changes might affect your specific circumstances, please contact us today to speak with one of our experienced advisors.
Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice.
