Inheritance tax time limits need extending to relieve stress on families and start-ups

A report from the House of Lords Economic Affairs Finance Bill Sub-Committee says it is “not realistic” to expect estates to meet the existing six-month deadline for paying IHT where pension assets are involved.
The Budget included bringing unused pension pots within the tax’s scope from April 2027.
The report recommended extending the IHT payment deadline from six months to 12 months for pension assets during a transitional period.
Wealth Club would also like to see extended time limits for estates when working out valuations for more complex assets like private companies.
Susannah Streeter, Chief Investment Strategist, Wealth Club

‘’Changes in the Budget intensified the stress for anyone dealing with the implications of inheritance tax. Bringing assets like pensions, small businesses and farms into scope for IHT add another layer of red tape and sticky confusion surrounding the tax. Not only is tracking down the details of assets in an estate difficult, valuing them can also be highly tricky, and the current time limits can cause intense stress.

Anyone who has tried to track down multiple pensions built up in different schemes over a long career, knows how much of an administrative burden it can be. It’s even more onerous for heirs, when the clock will be ticking to pay an IHT bill six months after the death. For families, it can be catastrophic, with anxiety piling up at a time of intense grief. Tracking down some beneficiaries can also be highly problematic, due to house moves, and if IHT payments are delayed, interest will mount up on bills, potentially delaying probate and adding to financial trauma. Valuing pensions that include a wide range of beneficiaries with smaller or larger entitlements is not straight forward. Valuing small private businesses and farms is even more of a challenge.

When it comes to other more complex assets, such as venture capital investments, there can be further confusion when it comes to valuation. There are a whole variety of ways in which small firms can be valued, from their most recent funding rounds to a multiple of sales, potentially resulting in very different results. These assets are not as liquid and can’t be sold as easily as other investments. A scenario could arise when IHT is paid on a private company investment which then fails a year or two later. It means the heirs will have paid tax on an asset that has sharply devalued and they can’t offload. This trend could be bad news for those backing UK start-ups and would disincentivise investment into a vital lever of growth for the economy.

The valuation problem could be worse still for small, professional services and creative businesses. The unexpected death of the name above the door will inevitably hit performance and might well see the business shuttered altogether. Valuing the company based on the previous year’s performance would hugely overstate its true economic value and create an unfair burden on beneficiaries. Extending the deadline for paying IHT bills by six months is just the first step in making the IHT reforms the government announced practical, without causing confusion and anxiety for families and added stress for entrepreneurs.”