HMRC inheritance tax rule change means 38,500 households face higher bills. From April 2027, unused defined contribution pensions will be counted as part of your estate for inheritance tax purposes - a major shift from the current system.
Key Changes and Impact
Savers are being urged to "protect" themselves after sweeping HMRC tax changes. Under the Labour Party government, the average bill for affected households is expected to increase by around £34,000, while thousands more estates will be pulled into paying inheritance tax for the very first time.
Mike Ambery, retirement savings director at Standard Life, said: "It's understandable that many people are reassessing how their retirement savings are used and passed on. However, scammers thrive on fear and uncertainty – when people feel unsettled or rushed, they're more likely to fall victim to a scam."
What Changes in 2027?
From April 2027, unused defined contribution pensions will be counted as part of your estate for inheritance tax purposes. This represents a major shift from the current system where pensions are typically exempt from inheritance tax.
That means estates surpassing tax-free thresholds will be hit with a 40% inheritance tax charge. Approximately 10,500 estates will pay inheritance tax for the first time, and an additional 38,500 will see their bills increase by £34,000 on average.
Mr Ambery added: "For many people, their pension savings simply won’t be large enough to fall into inheritance tax at all - but fraudsters may still try to convince them they need to act urgently."
HMRC's Official Estimate
HMRC explains: "The average Inheritance Tax liability is expected to increase by around £34,000 when pension assets are included in the value of the estate."
"These estimates are static and do not take into account potential behavioural changes, such as tax planning or drawing down pension funds faster, which may reduce the number of estates affected. As such, these projections should be viewed as a maximum."
Most estates will continue to have no Inheritance Tax liability after 6 April 2027. The government estimates that, of around 213,000 estates with inheritable pension wealth in 2027 to 2028, 10,500 estates will have an Inheritance Tax liability where previously they would not. Approximately 38,500 estates will pay more Inheritance Tax than would previously have been the case.
