153,000 Estates Will Face New Or Extra Inheritance Tax From 2027-2030

This is the estimated implication of including unused pension pots in a deceased member’s estate due to the changes announced in the Autumn Budget. Many will be forced to rethink their estate planning and pension strategies, and we urge anyone concerned by the changes to seek out independent financial advice. Some of the key takeaways are:

1. Rising IHT liability

Under the new proposals, unused pension funds and death benefits payable from pensions will be considered part of a deceased person’s estate for IHT calculations. The Office for Budget Responsibility (OBR) estimates that 31,200 additional estates will become liable for IHT, and 121,500 estates will see increased IHT liabilities between 2027 and 2030.

2. The financial impact

We calculate that an individual with a £300,000 mortgage-free home and a £100,000 pension would face an IHT bill of £30,000 from April 2027. If their pension pot were worth £300,000, their IHT bill would rise to £110,000.

3. Projected increase in IHT-liable estates

If the proposals are implemented, the number of taxpaying estates facing new or increased IHT liability will rise sharply.

4. Potential double taxation on pensions

From April 2027, pensions inherited by beneficiaries after the age of 75 will also be subject to income tax at the beneficiary’s marginal rate, creating a double taxation effect. The effective tax rate could reach 52% for basic-rate taxpayers, 64% for higher-rate taxpayers, and 67% for additional-rate taxpayers.

5. Increasing IHT burden by 2030

The number of IHT-paying estates has already risen, with 27,800 estates paying IHT in 2021/22, an increase of 3% from 2020/21. IHT receipts are expected to reach £8.3 billion in 2024/25, a 10.7% increase from the previous year. The OBR predicts that the proposed IHT changes will generate an additional £2.5 billion in revenue by 2029/30.

Conclusion

The proposed IHT reforms will significantly increase the number of estates subject to tax, affecting middle-class families and long-term retirement planning. With pensions becoming part of taxable estates, many individuals may need to rethink their financial strategies, including accelerating pension withdrawals or restructuring estate plans.

Attend One Of Our Later Life Financial Planning Under Labour Seminars 

The new IHT rules and other updated financial planning considerations are complex. However, as always there are things you can do. Planning and taking action now could make all the difference.

If you are concerned about how the budget impacts your situation, contact us to book on to our Financial Planning Under Labour seminar on 14th May.

Alternatively, call 0117 3636 212 or email office@haroldstephens.co.uk to book a complimentary inheritance tax review.