Pension inheritance tax change to lift average bill by £34,000

UK families face higher inheritance tax bills from April 2027, when most unused pension funds will enter the tax’s scope, with government estimates pointing to an average increase of around £34,000 for affected estates.

What happened

The government expects about 10,500 estates to become liable for inheritance tax for the first time in 2027–28. A further 38,500 estates are forecast to pay more. Those figures are estimates, rather than a measure of liabilities already incurred.

The change creates a funding issue as well as a larger potential tax charge. Inheritance tax is generally payable by the end of the sixth month after death, while beneficiaries can wait between six and 12 months to receive their inheritance.

Executors usually have to settle the tax, or the first instalment where instalments are allowed, before obtaining probate. That can leave an estate needing money before the inheritance is available to those receiving it.

Under the new arrangements, beneficiaries may be able to access only around half of the affected pension benefits for up to 15 months. The reform will not necessarily extend the overall wait for an inheritance, but it could restrict how much pension money is available during that period.

The background

Pensions have long served two purposes for families: providing retirement income and allowing wealth to pass to the next generation. Bringing most unused funds within inheritance tax changes the basis on which some families have organised their finances.

Existing plans may therefore reflect tax treatment that will no longer apply from April 2027. The concern is not confined to people making new arrangements; it also affects families whose decisions were made under the previous rules.

The distinction between wealth and available cash is particularly important for asset-rich households with limited liquid funds. A substantial inheritance on paper does not necessarily provide money to meet an immediate bill, especially alongside existing cost-of-living pressures.

What people are saying

Writing in City AM, Steve Gauke, managing director of Provira, warned that families could fail to recognise their exposure until they have little opportunity to prepare. His concern centres on the gap between the government communicating the changes and households understanding what they mean for their own estates.

Gauke argued that beneficiaries could receive less than they expected while also having to find money at a difficult time. In his assessment, the practical pressure falls on families dealing with both bereavement and financial commitments.

He called for clearer government communication, adequate preparation time and flexibility where the administration of an estate takes longer than the timetable for paying its bills.

What happens next

Ahead of April 2027, Gauke urged families to discuss inheritance arrangements, establish what an estate is likely to contain and locate the relevant documents. That information can help them assess whether unused pension funds could create an inheritance tax liability.

He also recommended independent financial advice and a review of available payment arrangements. The preparation he advocates includes identifying how a tax bill would actually be funded, rather than considering only its likely size.

Where money is inaccessible, Gauke identified probate or inheritance loans as one possible route to obtaining part of an inheritance earlier. He presented borrowing as an option that could help families avoid selling assets in haste, rather than as a requirement of the new rules.