Can the House of Lords potentially shift the government's stance on contested changes to inheritance tax policies?
The House of Lords is currently scrutinising the government's proposed inheritance tax reforms, with a particular focus on the changes to agricultural property relief and the inclusion of pensions in an estate's value for inheritance tax purposes.
Lord Liddle, chair of the Finance Bill Sub-Committee, stated that the committee's work focuses on how the government's tax policy can best be implemented and administered. The government plans to restrict agricultural property relief to the first £1 million after 6 April 2026, a move that has faced protest and criticism.
Rachel Vahey, head of public policy at AJ Bell, expressed hope that the House of Lords can convince the government to change direction. She suggested that it's not too late for the government to reconsider and soften its inheritance tax reforms to avoid controversy. One alternative proposed by AJ Bell is applying income tax on withdrawals from inherited pensions at the marginal rate of the beneficiary if the person dies before age 75.
In addition to the changes to agricultural property relief, the government is also pressing ahead with plans to make unused pension funds part of a person's estate for inheritance tax. Chancellor Rachel Reeves announced that pensions would be included in an estate for inheritance tax purposes from 2027. Peers are questioning how much awareness there is of these changes and if more is needed.
The House of Lords Finance Bill Sub-Committee has launched an inquiry into the inheritance tax reforms, seeking views on the impact, complexity, and awareness of these changes. Rachel Vahey, head of public policy at AJ Bell, suggested that the House of Lords can play a crucial role in convincing the government to reconsider its plans. In January, the chief executives of several financial companies signed a joint letter to the chancellor's office opposing the plans.
Above the £1 million limit, landowners will pay inheritance tax at a reduced rate of 20%. However, the government's reforms could potentially impact many families, especially those with significant agricultural or business assets. The House of Lords is also inquiring about the ease of reporting and making arrangements for inheritance tax due within the statutory six-month period.
As the government's inheritance tax reforms make their way through Parliament in the draft Finance Bill, the House of Lords' scrutiny and the public and political opposition remain significant. It remains to be seen whether the government will make any changes to its plans in response to the concerns raised.
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