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Four times as many families could be exposed to inheritance tax as headline Government figures suggest

ended 20. September 2026

New research suggests inheritance tax could be relevant to far more families than the headline Government figures might imply.

Fewer than 5% of estates currently pay inheritance tax. But new analysis from Tax Policy Associates estimates that 20.3% of pensioner households in England and Wales could potentially face an inheritance tax liability if the pensioner and any spouse died in April 2027.

The researchers stress that this does not mean one in five pensioner households will ultimately pay inheritance tax. Some people will spend assets, make gifts or undertake estate planning before they die.

However, the analysis suggests the number of families for whom inheritance tax is a genuine financial-planning consideration could be around four times greater than the proportion of estates currently paying the tax.

The research deliberately looks at April 2027 because, from 6 April that year, most unused pension funds and pension death benefits will be brought into an individual's estate for inheritance tax purposes. The change has already been legislated for in Finance Act 2026.

HMRC estimates that around 10,500 estates with inheritable pension wealth will become liable for inheritance tax in 2027/28 when they would not previously have been, while another 38,500 estates will pay more inheritance tax. The average additional liability for estates affected by pension wealth is estimated at around £34,000.

Tax Policy Associates' analysis also highlights significant geographical differences. It estimates that 52% of pensioner households in Wimbledon could potentially be exposed to IHT, compared with 46% in Finchley and around 9% in Durham.

The researchers also attempted to measure the wider impact by including the adult children of potentially affected pensioners, who may ultimately bear the economic cost through reduced inheritances. On that measure, they estimate that 12.3% of British adults either live in an affected household or are the adult children of one.

Scott Gallacher, Chartered Financial Planner at Rowley Turton, said:

“I'm not surprised by these figures.

“Bringing unused defined contribution pension savings into the inheritance tax net from April 2027 is a significant change and, in my view, potentially drags many ordinary families into inheritance tax simply because they have been prudent.

“Someone may have spent decades doing exactly what successive governments have encouraged them to do: working, saving and building up a pension so that they can provide for themselves in retirement.

“What I find particularly striking is that the pension change applies regardless of the age at which somebody dies. Someone who dies unexpectedly relatively young with a substantial unused pension could potentially create an inheritance tax issue for their family.

“The commonly quoted statistic that fewer than 5% of estates pay inheritance tax therefore only tells part of the story. The number of living families for whom inheritance tax is potentially relevant appears to be much greater.”

Questions for experts: 

Does focusing on the percentage of estates that ultimately pay inheritance tax understate how many families genuinely need to consider it? 

Are advisers seeing more ordinary pension savers potentially brought within the IHT net by the April 2027 pension changes? 

Is it reasonable for unused pension savings to be treated in broadly the same way for inheritance tax whether someone dies relatively young or after a long retirement?

 And do these figures change how inheritance tax should be discussed with clients who might never previously have considered themselves wealthy?

4 responses from the Newspage community

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Ross LaceyVerified
Director at Fairview Financial Management
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Inheritance tax and the rules around it are often points of confusion. We regularly speak to people who think they have an IHT problem when they don't and vice versa.

Being based in Essex, lots of people have a significant portion of their wealth in their main home. The often quoted £1m inheritance allowance can be heavily eaten up by that alone.

Add in a couple of average size pension pots, and from April 2027 many more people will find themselves over the £1m mark.

We're also seeing unmarried couples look to consider getting married to ensure they and their family members benefit from greater allowances.
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Tony RedondoVerified
Founder at Cosmos Currency Exchange
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Only around 5% of estates pay Inheritance Tax, but that's a rear-view mirror, reflecting past deaths, after years of planning and gifting. Tax Policy Associates put pensioner households with reason to care at 20.3%. Fair challenge: that's exposure, not liability as not all will pay. But with the nil-rate band frozen to 2030/31, drift only pulls one way as long as asset prices continue to climb. From April 2027, unused pensions join the estate. A modest home plus a prudent pot can breach the threshold, though the residence nil-rate band, where it applies, softens that. Die suddenly at 58 and there's no time to spend down; after 75, IHT and then income tax can hit the same pot. The Treasury says pensions were never inheritance vehicles, but this penalises those who have saved and planned so the government is penalising good behaviour. Spending ISAs first and pensions last is now an out-of-date idea. IHT is now a cash-flow question, not a rich person's problem.
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Nouran MoustafaVerified
Practice Principal & IFA at Roxton Wealth
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The 5% statistic risks creating a false sense of security. Clients don't need to know whether they will definitely pay inheritance tax in 20 years; they need to know whether they are potentially exposed today and whether planning should form part of the conversation.

The pension change makes that much more important. For years, many people have treated pensions as the asset to preserve and pass down, sometimes spending ISAs or other savings first. From April 2027, that behaviour may no longer produce the outcome they expected.

The danger is overreaction. I don't want somebody reading about inheritance tax and suddenly withdrawing a pension or gifting large sums simply to beat a tax they may never pay. Good estate planning is not about dying with the smallest possible tax bill; it is about balancing tax efficiency with having enough money, flexibility and security while you're alive.

IHT planning is increasingly becoming ordinary financial planning, not something for wealthy only
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Dariusz KarpowiczVerified
Director at Albion Financial Advice
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Decades of prudent saving are being penalised by constant rule changes. The government’s message seems to be that any long-term plan you make today is simply a target for a future tax grab. What looks like a sensible strategy can become a costly mistake overnight.

This isn't a problem for the wealthy. With the nil-rate band frozen, fiscal drag is pulling more ordinary families into the net. The old advice to spend other assets and preserve your pension is now officially redundant. You're expected to plan for a system that is fundamentally unpredictable.