UK inheritance tax reforms to include pensions in taxable estates

The UK government is implementing significant changes to inheritance tax (IHT) rules that will impact how pensions and business assets are passed to heirs.

Starting in April 2027, unused pension pots and death benefits will be included in a deceased person’s estate for IHT purposes. Currently, most unused pensions sit outside the estate, allowing families to inherit funds with minimal tax. Under the new regulations, these funds will be subject to IHT, potentially at a rate of up to 40% once allowances are exceeded. This change aims to ensure pensions are used primarily for retirement income rather than inheritance planning.

Additionally, changes to Agricultural Property Relief (APR) and Business Relief (BR) have already come into effect as of April 2026. A cap has been placed on 100% relief for agricultural and business property at £2.5 million; any value exceeding this amount will qualify for only 50% relief. These reforms are expected to increase IHT bills for many estates and may affect the transfer of family businesses and farms to future generations.