A House of Lords committee has warned that proposed inheritance tax (IHT) reforms risk creating a damaging generational divide between younger and older business owners and farmers.
The Economic Affairs Finance Bill Sub-Committee issued a report examining changes to inheritance tax on unused pension funds, alongside reforms to agricultural and business property reliefs.
It said it “urges the Government to take significant steps to ensure these measures can work in practice, particularly for bereaved families and the people administrating estates at a time of grief”.
Peers noted that younger farmers and business owners are likely to have time to adjust their financial planning to the new regime, whereas older generations face far more limited options under the proposed rules.
The intervention comes in the wake of large-scale farmer protests last year, when tractors blocked central London roads during a march to Whitehall ahead of the autumn Budget.
Natalie Butt, director of private clients at Crowe UK, gave evidence to the committee on the likely impact of the reforms.
She said: “As it stands, most business owners and individuals are simply not ready for the upcoming changes.”
The reforms, she told peers, would have significant implications for business owners, individuals and the wider economy.
Ms Butt also questioned whether HMRC could cope with an expected rise in complex inheritance tax valuations and enquiries.
Figures obtained by Crowe through a Freedom of Information (FOI) request showed that almost half of all inheritance tax enquiries are being referred to HMRC’s Shares and Valuations team, while the average enquiry took 18.3 months to resolve in the 2023/24 financial year.
Peers raise concerns over impact on older farmers and business owners
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She warned that implementing reforms of this scale without transitional measures could lead to forced asset sales and disrupted succession plans.
“Many older business owners who are unlikely to benefit from the seven year gifting window may find themselves effectively trapped,” she said.
“With timescales compressed, long established family businesses may be unable to restructure in time.”
Ms Butt urged ministers to consider age-related transitional arrangements for those who have planned under the existing inheritance tax framework.
The committee echoed these concerns, highlighting that anti-forestalling provisions could further restrict elderly and vulnerable individuals from making use of lifetime gifting rules.
It recommended that the Government seek views on how to ensure older people are not disproportionately affected.
Peers also raised practical issues around the payment of inheritance tax.
They argued that the current six-month deadline is unrealistic for estates containing qualifying business and agricultural property and recommended extending the period to 12 months to ease liquidity pressures.
Farming estates were identified as particularly exposed, with peers noting that such estates are often asset-rich but cash-poor, making it difficult to raise funds quickly to meet tax liabilities.
Ms Butt agreed: “There is also widespread concern that the six month inheritance tax payment deadline is not realistic.” Extending this to 12 months, she said, “would be a far more practical approach”.
Even with a proposed ten-year instalment option, she added, farming estates can struggle to generate sufficient short-term cash.
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The committee also called for a statutory safe harbour to protect personal representatives from late payment interest where delays fall outside their control.
Further concerns were raised about whether HMRC has the resources to manage the increased workload expected once the reforms take effect.
Ms Butt said: “Questions remain over HMRC’s capacity to handle the anticipated surge in IHT enquiries and valuations.
“The question now is whether HMRC will be adequately equipped and resourced to manage a sharp increase in cases.”
The committee recommended that the Government review HMRC staffing levels and internal expertise before April 2026 to ensure valuation teams can cope with additional demand.
It also urged ministers to engage with professional valuers to understand the sector’s capacity and the availability of suitably skilled specialists.