Families caught out by tax changes brought in by the chancellor should be given more time to settle their bill, a House of Lords committee has said.

Inheritance tax has to be paid to HM Revenue & Customs within six months of a death. In some cases the taxman will allow a bill to be settled over ten annual instalments but the first payment must be paid within six months.

A House of Lords Finance Bill committee, which scrutinises the measures in the chancellor’s budget, said this should be extended to a year because changes to the way inheritance tax is calculated on pensions, farms and small businesses will make it harder for families to organise their affairs. The committee also wants the taxman to waive interest on late payments when a family can prove that delays were beyond their control.

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Lord Liddle, who chaired the committee, said: “We think inheritance tax is going to become a significant problem for people who have just suffered a death and must now sort out the tax affairs of their loved one within six months, especially when this is applied to pensions.”

Money left in a pension, which is not subject to inheritance tax at the moment, will be considered part of someone’s taxable estate from April 6, 2027. This means your pension would be counted among the £325,000 of assets that everyone can pass on tax-free. Anything above this tax-free allowance can be subject to 40 per cent tax. Anything left to a spouse or civil partner is inheritance tax-free, and you get another £175,000 tax-free allowance if you leave your main home to a direct descendant and your estate is worth less than £2 million. Spouses and civil partners can inherit one another’s unused allowances, giving a couple a potential £1 million tax-free allowance.

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Liddle said the change to pension rules will make it more complicated and time-consuming to settle an estate because many people have more than one pension. The committee said that pension firms can take longer than six months to locate pots and identify the correct beneficiaries, especially in complex family circumstances.

It means families could be hit with interest charges of 7.75 per cent a year on late payments to HMRC.

Since April 2025 late tax payments have been subject to interest at the Bank of England base rate plus 4 percentage points. The chancellor increased this rate from Bank rate plus 2.5 percentage points in her first budget in 2024. Interest is charged daily from the date the tax is due until the bill is paid in full.

According to a Freedom of Information request by AJ Bell, the tax man raked in over £150 million in late payment interest on income tax in the 2022-23 tax year by March 2025, with the average interest payment sitting at £103.33.

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The committee said that the chancellor’s changes to inheritance tax liabilities on farms and businesses had added complexity to the system.

From April farmland worth up to £2.5 million can be passed on inheritance tax-free — any estate value above that is subject to 20 per cent tax. When spousal allowances are taken into account, a farming couple can pass on £5 million without incurring death duties. Small businesses will get a £1 million tax-free allowance from April and face an inheritance tax rate of 20 per cent on any value above that.

Liddle said: “Despite the changes there are still farms that will be caught in the net, and valuing farms is a complex business, from the equipment to the cattle. Lots of farmers are also small business people now, running farm shops and letting houses on their land, making valuation a complicated business.”

In some cases HMRC allows families to pay inheritance tax bills interest-free over a ten-year period.

Nicholas Hyett from the investment firm Wealth Club said: “Extending the deadline for paying inheritance tax bills by six months is just the first step on the long road to making the government’s inheritance tax reforms workable.”

The committee sends its recommendations to the House of Commons for consideration before the Finance Bill is voted into law.