The Government is pushing ahead with plans to include pensions within inheritance tax (IHT) from April 2027, but has made some adjustments to its implementation plans.
The move is expected to raise £1.5bn a year by 2029/30, with the average IHT burden expected to increase by £34,000.
The plans were confirmed by the Government on Monday (21 July). From April 6 2027, IHT will be applied on unused pension funds and death benefits.
Chancellor Rachel Reeves first unveiled the plans in the Autumn Statement 2024.
Adjustments
The Government has adjusted its original proposals following a consultation on the mechanics of implementation, which closed in January.
One such change is that personal representatives, rather pension scheme administrators, will be liable for reporting and paying any IHT due, and death in service benefits payable from a registered pension scheme will remain out of scope of IHT.
As part of the Autumn Budget 2024, the Government announced measures to reform IHT and “deliver a fairer, less economically distortive tax treatment of inherited wealth and assets, including this measure”.
Comment
Personally, I think Labour have got it wrong again on this one. They are penalising hard working people that have done the right thing and accumulated good pension assets for their retirement.
Having said that, for the majority of people funding pensions is still one of the best things to do to provide your retirement income, it’s tax efficient.
For a lot of married couples or for those in a Civil Partnership, you might not have an inheritance tax position unless your assets exceed £1 million, including your pension funds, from April 2027.
We can implement individual planning strategies as appropriate if you have an inheritance tax position now or in the future.
Generally, we caution against any knee jerk reaction to this legislative change. Consider your position, think long term, and take independent financial advice.
Steve Speed
IFA & Employee Benefit Consultant
22/07/2025