UK Introduces Inheritance Tax on Pensions

In a significant shift announced in Chancellor Rachel Reeves's Autumn Budget, pensions will be subjected to inheritance tax (IHT) starting April 2027, impacting tens of thousands of families. Previously exempt, pension pots will now be included in the estate value for tax calculations, leading to potential double taxation—both IHT at 40% and income tax on remaining funds. Analysts predict that this change could generate over £3 billion for the Treasury by 2030 and affect about 8% of estates, equating to approximately 50,660 families annually. Critics argue the reform undermines the original purpose of pensions and could prompt retirees to withdraw funds sooner, disrupting financial planning. The government maintains that the change addresses the misuse of pensions as tax shelters, though it has raised concerns about its impact on younger generations and overall retirement savings. The inherited tax threshold remains frozen at £325,000 until 2030, placing additional financial strain on families with modest estates.