Inheritance Tax Changes Could Leave Families Facing Unexpected Bills
At Exchange Accountants, we are advising clients to review their inheritance planning following significant changes to the way pension savings are treated for inheritance tax (IHT).
Chancellor Rachel Reeves confirmed in the last autumn Budget that unspent pension pots will now form part of an individual’s estate for IHT purposes, regardless of age at death.
This is a major shift away from previous rules, where pensions could usually be passed on tax-free if the deceased was under 75.
What’s changing?
Pension inclusion: From now on, unspent pensions will be added to an estate for IHT purposes.
40% charge: Any assets above the £325,000 nil-rate band, plus the £175,000 residence allowance (if leaving a main home to direct descendants), will be taxed at 40%.
Treasury impact: The changes are expected to raise £1.5bn annually by 2029–30, largely by pulling more middle-income families into the IHT net.
What does this mean for families?
Analysis shows the impact could be significant:
A single homeowner with an average-priced property (£290,000) and a pension (£415,000) could face an IHT bill of over £80,000.
Cohabiting couples — who cannot combine allowances like married couples — will be particularly affected. A family with children could face an IHT bill of £24,000 or more purely due to pension inclusion.
In higher-value property areas, such as London, liabilities could easily reach £190,000+, even for families of modest means.
Even in Northern Ireland, where property values are lower, previously unaffected estates could now face bills of £20,000 or more.
Who is most at risk?
Single homeowners with pension savings
Cohabiting couples who do not benefit from spousal exemptions
Families with children where assets are tied up in property and pensions
Those with unaccessed pensions, which could now inflate their taxable estate
Why planning matters more than ever
While the Treasury has stated that more than 90% of estates will still fall outside IHT, the reality is that middle-income families are increasingly being caught out, particularly when property values and pensions are combined.
At Exchange Accountants, we believe this underlines the importance of early inheritance planning. Strategies such as:
Reviewing how assets are owned and structured
Considering marriage or civil partnership where appropriate
Exploring trusts, lifetime gifting and pension drawdown planning
Making use of allowances before rules tighten further
can all make a significant difference to the IHT bill a family may face.
Our view
These changes risk adding financial strain to families already coping with bereavement. Married couples retain protections and exemptions, while unmarried families face disproportionate costs.
At Exchange Accountants, we recommend clients take a proactive approach to IHT planning. Understanding how these changes affect your specific circumstances is key to ensuring your family isn’t left with unexpected liabilities.
Next steps
If you are a homeowner or have built up pension savings, now is the time to review your estate planning. Our team can help you assess your position and put in place strategies to protect your family and your wealth for the next generation.
Contact Exchange Accountants today for a confidential review.
