A recent report from a House of Lords committee has raised concerns about proposed changes to inheritance tax on pensions. The committee has warned that these changes could place an unmanageable burden on personal representatives, potentially causing delays, cashflow problems, and rising costs.

The proposed changes, which were announced in the 2021 Budget, would see the tax-free pension allowance reduced from £1.073 million to £1 million. This means that any pension savings above this threshold would be subject to inheritance tax at a rate of 40%. The changes are set to come into effect from April 2022.

The House of Lords committee, which is responsible for scrutinizing government policies, has expressed concerns that these changes could have a significant impact on personal representatives who are responsible for managing the estate of a deceased person. In their report, the committee stated that the changes could lead to an overwhelming burden on personal representatives, potentially causing delays in the distribution of assets and creating cashflow problems.

The committee also highlighted the potential for rising costs, as personal representatives may need to seek professional advice to navigate the complex tax rules. This could result in additional expenses for the estate, reducing the amount of inheritance that can be passed on to loved ones.

The proposed changes have been met with criticism from various groups, including the Law Society and the Institute of Chartered Accountants in England and Wales. They have raised concerns about the impact on families who may be forced to sell assets, such as family homes, to cover the inheritance tax bill.

In response to these concerns, the House of Lords committee has called on the government to reconsider the proposed changes and to conduct a thorough impact assessment before implementing them. The committee has also suggested alternative measures, such as increasing the tax-free allowance or introducing a tapering system, to ensure that the changes do not place an excessive burden on personal representatives.

The government has defended the proposed changes, stating that they are necessary to ensure a fair and sustainable tax system. They have also emphasized that the majority of estates will not be affected by the changes, as the average pension pot in the UK is below the £1 million threshold.

However, the House of Lords committee has warned that even estates with relatively modest pension savings could be impacted by the changes, particularly if the individual has other assets, such as property or investments.

In light of these concerns, it is important for the government to carefully consider the potential consequences of these changes before implementing them. The House of Lords committee has rightly highlighted the potential burden on personal representatives and the impact on families who may be forced to sell assets to cover the inheritance tax bill.

It is also essential for the government to conduct a thorough impact assessment to ensure that the changes do not have unintended consequences. This will help to ensure that the tax system remains fair and equitable for all individuals, regardless of their wealth or financial circumstances.

In conclusion, the proposed changes to inheritance tax on pensions have raised valid concerns about the potential burden on personal representatives and the impact on families. It is crucial for the government to carefully consider these concerns and to conduct a thorough impact assessment before implementing any changes. This will help to ensure that the tax system remains fair and sustainable for all individuals.