Is it possible that the House of Lords will influence the government's position on contentious inheritance tax reforms?

Can the government's plans be halted? The House of Lords has opened an investigation into changes to inheritance taxes on pensions and agricultural property relief

The controversial inheritance tax reforms implemented by the government will be examined by the House of Lords.

In her 2024 Autumn Budget, Chancellor Rachel Reeves declared that pensions would be considered part of an estate for the purposes of inheritance tax (IHT) starting in 2027. Additionally, plans were made to reduce business and agricultural reliefs.

The government is continuing to implement the inheritance tax reforms in spite of opposition.

A lot of these changes are currently being discussed in Parliament as part of the draft Finance Bill, despite concerns about their complexity and ambiguity.

A separate investigation into the change was initiated this week by the House of Lords Finance Bill Sub-Committee.

Peers from all around the chamber are seeking opinions on proposals to reform business and agricultural property relief, as well as to include unused pension funds in an individual's estate for the purposes of IHT.

The head of public policy at AJ Bell, one of the critics, Rachel Vahey, said she hopes the House of Lords can persuade the government to take a different course.

She expressed her hope that the Lords would be able to assess the impact of this and request that the government alter its course.

"The government is requiring bereaved families to pay the IHT bill within six months, which will put a significant administrative strain on them. Since many people have complicated financial situations, particularly those who pass away suddenly, it might not be easy to pay the bill right away.

Pension reforms and inheritance taxes.

Pensions would start to count toward an estate's value for IHT in April 2027 under the current plans.

This makes financial planning very difficult.

However, the investigation is interested in the impact on administrators of pension plans as well as the difficulty personal representatives would have in identifying and reporting inheritance tax owed on unused pension funds and death benefits.

Peers are also wondering if more is required and how much awareness there is of the changes.

Relief for agricultural property has changed.

As long as the estate was actively farmed for more than two years, it is currently eligible for 100% IHT relief through agricultural property relief.

Following April 6, 2026, the government plans to limit the relief to the first one million.

This holds true for both business and agricultural property reliefs combined.

Above this threshold, landowners will pay inheritance tax at a 20 percent rate instead of the usual 40 percent.

Farmers have protested, and the House of Lords is looking for opinions on the effects, intricacy, and awareness of the changes. They also want to know how simple it will be for those impacted to report and arrange for payment of the inheritance tax that is due within the six-month period.

This is what Lord Liddle, the Finance Bill Subcommittee chair, said.

The government is proposing a measure to include death benefits and unused pension funds under inheritance tax in its draft finance bill. Additionally, it is making major adjustments to the reliefs for business and agricultural property.

"The government's proposed tax rates are not examined in the work of the Finance Bill Sub-Committee. Rather, it suggests the best ways to administer and execute the government's tax policy.

"It is still possible to halt reforms."

Protests and criticism have been directed towards the government due to the modifications made to its consultations.

In January, AJ Bell, Hargreaves Lansdown, Interactive Investor, and Quilter CEOs jointly sent a letter to the chancellor's office expressing their opposition to the plans.

Vahey went on to say that there is still time for the government to reconsider, and AJ Bell has offered some substitutes.

One is applying income tax at the beneficiary's marginal rate to withdrawals from an inherited pension in the event that the individual passes away before turning 75.

"Ministers still have time to realize that these proposals are not the most effective way to accomplish their goals," Vahey stated. There are other ways to tax pensions upon death that will still increase government coffers by the same amount without causing the administrative annoyance, payment delays, and anxiety that the current set of proposals threaten to cause for bereaved families.