The government expects the move to raise £1.5 billion annually by the 2029/30 tax year, with the average inheritance tax (IHT) liability projected to rise by £34,000.
The changes were officially confirmed on Monday, 21 July. From 6 April 2027, IHT will apply to unused pension funds and death benefits.
Chancellor Rachel Reeves initially announced the proposal in the Autumn Statement 2024.
Implementation Adjustments
Following a consultation on how the policy should be implemented — which closed in January — the government has made adjustments to its original proposals.
Key changes include making personal representatives, rather than pension scheme administrators, responsible for reporting and paying any IHT due. Additionally, death-in-service benefits from registered pension schemes will remain exempt from IHT.
These changes form part of broader IHT reforms announced in the Autumn Budget 2024, aimed at creating a “fairer, less economically distortive tax treatment of inherited wealth and assets.”
Andrew Tully, technical services director at Nucleus Financial, criticised the move:
“Including pensions within the IHT environment will result in poor outcomes for customers, beneficiaries, personal representatives, the industry, and HMRC.
“This complex process will create confusion and stress for bereaved families during an already difficult time. It also clashes with the kind of supportive service that firms may wish to provide to vulnerable individuals following the loss of a loved one.”
