The Treasury has confirmed it will not extend the current six-month deadline for bereaved families to settle inheritance tax debts on pension assets. The decision comes in response to calls from a House of Lords committee and industry figures for more time to complete increasingly complex estate settlements.
The move is particularly significant ahead of changes due in April 2027, when unspent defined contribution pension pots will, for the first time, fall within the scope of inheritance tax. Critics argue the current timeframe may place additional stress on grieving families, while ministers maintain it is necessary for efficient tax collection.
Treasury responds to Lords’ calls
On 30 March 2026, correspondence from the Treasury confirmed ministers will maintain longstanding deadlines for paying inheritance tax, despite recommendations from a House of Lords committee to double the payment window to twelve months.
The Treasury stated these deadlines 'ensure tax is collected quickly and efficiently' and that they are not prepared to alter the established six-month period.
Peers argued that extended deadlines would allow bereaved families greater flexibility to gather necessary financial information and avoid interest penalties, which currently accrue from the seventh month after death.
Upcoming changes to inheritance tax on pensions
The policy decision follows reforms announced by Chancellor Rachel Reeves in the October 2024 Budget. From April 2027, unspent defined contribution pension savings will be included within the inheritance tax regime for the first time.
This change means estates may face tax charges of up to 40 per cent on inherited pension funds above the existing nil-rate band of £325,000, with an additional £175,000 allowance if a main residence is left to direct descendants.
These reforms are expected to bring thousands more estates into the scope of inheritance tax, with financial and administrative implications for executors and families.
Concerns raised by industry and peers
Industry experts warn the inclusion of pensions in inheritance tax assessments is likely to further complicate estate administration. Steve Webb, partner at Lane Clark & Peacock, said: 'The new process for including pensions in inheritance tax is undoubtedly going to slow things down for bereaved families.'
He added that a modest extension would 'reduce the stress on families' and argued the government should reconsider its position. Rachel Vahey, head of public policy at investment firm AJ Bell,
commented that the six-month payment period 'was set in past centuries at a time when settling financial matters was generally a more straightforward process.' She warned that administrative challenges would increase as the April 2027 deadline approaches.
Administrative and financial context
Estate executors are required to identify and value assets, contact pension providers, and calculate liabilities before inheritance tax is due.
Peers and advisers argue these steps are often difficult to meet within six months, especially in cases involving multiple pension providers or complex arrangements.
Current rules impose a 40 per cent inheritance tax rate on qualifying estates, with interest on overdue tax payments set at 7.75 per cent. The short payment window has been criticised as unrealistic in the modern, increasingly complicated financial landscape.
Support measures for personal representatives
Government sources have emphasised that support mechanisms exist to assist those facing inheritance tax deadlines. Pension providers are required by regulation to supply necessary information within prescribed timeframes.
Executors can request schemes pay tax directly from pension funds, and they may apply for up to half an inherited pension to be ringfenced for fifteen months to cover future tax liabilities. Despite these provisions, commentators continue to warn that the administrative burden remains significant.
Final Summary
The Treasury’s refusal to extend inheritance tax payment deadlines for pension assets underscores a commitment to swift tax collection in the face of substantial forthcoming changes.
From April 2027, unspent defined contribution pensions will be drawn into the inheritance tax regime, prompting concerns among peers and financial experts about increased pressures on bereaved families.
Government officials maintain that available support is sufficient, while critics continue to argue for a more flexible approach. As policy evolves, individuals and representatives may wish to review their estate plans and consider tools such as the Pie app to stay informed about changes in tax matters.
