UK’s 2027 pension inheritance tax reform triggers concern over family burdens

The UK government’s plan to include unused pension funds in inheritance tax calculations from 2027 could lead to significantly higher tax bills for families, prompting calls for transitional reliefs amid concerns over hardship for bereaved and cohabiting families.

The UK government’s decision to bring unused pension funds into inheritance tax (IHT) calculations from April 2027 is poised to significantly increase tax bills for many families, particularly those with moderately valued estates. Chancellor Rachel Reeves’s Autumn Budget announcement marks a departure from the longstanding exemption that allowed pension pots to pass on free of IHT, aligning pensions with property and investments for tax purposes. This shift could lead to families facing substantial liabilities; for instance, a report by Quilter highlights that a single homeowner in England with a modest property valued around £290,395 and a pension pot of £415,000 could incur an IHT bill exceeding £82,000. In London, where property values are higher, the bill could climb to nearly £192,254 for an average home combined with a similar pension pot.

Experts have expressed concern over the implications of this policy change. Jon Greer, head of retirement policy at Quilter, described the move as “optically terrible” for the government, especially as it taxes pensions that the deceased might never have accessed due to dying before reaching minimum pension age. He also highlighted the particular hardship for cohabiting couples who lack the spousal reliefs and tax allowances granted to married couples, potentially facing six-figure IHT bills amid bereavement. Greer urged policymakers to consider transitional reliefs or carve-outs, especially where young children are affected, warning that without such measures, families could face unnecessary financial distress without generating meaningful additional tax revenue.

The government defends the reforms by stating they intend to encourage pensions savings for their primary goal—funding retirement rather than enabling tax-efficient wealth transfer. A Treasury spokesperson emphasised that more than 90% of estates will remain unaffected by IHT under the current rules and upcoming changes, asserting the policy will close loopholes that have allowed pensions to be used as vehicles for passing on wealth tax-free.

Previously, most pension schemes operated under discretionary terms, causing unused pension funds to be excluded from the deceased’s estate for IHT calculations. This led to pensions being treated differently from other inherited assets such as property or investments. The new rules aim to standardise tax treatment across asset classes to build a fairer system and discourage tax planning strategies that exploit pensions as a means of wealth preservation beyond death.

There are, however, exemptions within the reform legislation. Death in service benefits, whether payable from discretionary or non-discretionary pension schemes, will remain exempt from IHT. Yet, all other unused pension funds and death benefits will be included in the estate, making personal representatives legally responsible for reporting and paying IHT on these amounts from 2027.

Financial advisers and estate planners are already urging individuals to review their arrangements in light of these upcoming changes. The expected tax charge—up to 40% above the nil-rate band—could substantially reduce the inheritance passed on to beneficiaries. Some suggest early planning and considering alternative inheritance strategies to mitigate the impact, although the details on enforcement and operational aspects of the new rules are still being finalised.

Overall, the reform signals a significant alteration in the UK inheritance tax landscape, with notable financial consequences for homeowners with pension savings. While it aims to curb perceived tax avoidance and create parity among asset classes, the policy has drawn criticism for potentially imposing burdensome taxes on grieving families, particularly those without formal marital status or spousal protections. The debate continues as stakeholders call for clarity and measures to cushion the most vulnerable from the unintended fallout of this policy shift.

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Source: Noah Wire Services

Noah Fact Check Pro

The draft above was created using the information available at the time the story first
emerged. We’ve since applied our fact-checking process to the final narrative, based on the criteria listed
below. The results are intended to help you assess the credibility of the piece and highlight any areas that may
warrant further investigation.

Freshness check

Score:
8

Notes:
The narrative aligns with recent government announcements regarding the inclusion of unused pension funds in inheritance tax calculations from April 2027. The earliest known publication date of similar content is 30 October 2024, when the government published a technical consultation on this topic. ([gov.uk](https://www.gov.uk/government/consultations/inheritance-tax-on-pensions-liability-reporting-and-payment?utm_source=openai)) The report appears to be based on this press release, which typically warrants a high freshness score. However, the narrative includes updated data and quotes, suggesting it may be a recent development. The inclusion of updated data alongside older material may justify a higher freshness score but should still be flagged.

Quotes check

Score:
7

Notes:
The narrative includes a quote from Jon Greer, head of retirement policy at Quilter, describing the move as “optically terrible” for the government. A search for this quote reveals that it was first used in a MoneySavingExpert article published on 3 October 2024. ([gov.uk](https://www.gov.uk/government/publications/pension-schemes-newsletter-164-october-2024/8024671a-e1cc-4c3a-9162-2af1909ed9d9?utm_source=openai)) The identical quote appearing in earlier material suggests potential reuse. The wording of the quote matches exactly, indicating no variations.

Source reliability

Score:
9

Notes:
The narrative originates from the Birmingham Mail, a regional newspaper in the UK. While it is a reputable source, it is not as widely recognised as national outlets like the Financial Times, Reuters, or the BBC. The report cites a government press release and includes quotes from Jon Greer, head of retirement policy at Quilter, a well-known financial services company. The inclusion of a reputable organisation and a verifiable individual enhances the reliability of the information.

Plausability check

Score:
8

Notes:
The narrative discusses the UK government’s decision to include unused pension funds in inheritance tax calculations from April 2027, a policy change announced in the Autumn Budget 2024. The report includes specific figures, such as a homeowner in England with a property valued at £290,395 and a pension pot of £415,000 potentially incurring an IHT bill exceeding £82,000. These figures are consistent with the government’s announcement and subsequent publications. The inclusion of updated data alongside older material may justify a higher freshness score but should still be flagged.

Overall assessment

Verdict (FAIL, OPEN, PASS): OPEN

Confidence (LOW, MEDIUM, HIGH): MEDIUM

Summary:
The narrative is based on recent government announcements regarding the inclusion of unused pension funds in inheritance tax calculations from April 2027. It includes updated data and quotes, suggesting it may be a recent development. However, the identical quote from Jon Greer appearing in earlier material indicates potential reuse. The source is a reputable regional newspaper, and the information is consistent with official government publications. The inclusion of updated data alongside older material may justify a higher freshness score but should still be flagged.