Rachel Reeves is now your “favourite child” due to inheritance tax extending to pensions

CHANCELLOR Rachel Reeves is now your “favourite child” with some Brits being forced to give more in inheritance tax (IHT) than their own kids, experts have warned.
 

With the government now looking to levy inheritance tax on your pensions from April 2027, if you have two children and an estate worth over £1m, you might be leaving more to the Chancellor than to either of your kids, a financial expert claimed.
 

Scott Gallacher, Director at Rowley Turton says he has worked out that for a married couple with children, the excess over £1m is taxed at 40% under current inheritance tax rules. That means for every £1 above the £1m threshold, 40p goes straight to HMRC — leaving just 60p to be split between your two children.
 

The maths? Only 30p of every pound over £1m ends up with each child — while “child” number three, Rachel Reeves, gets the largest single share, i.e. 40p.
 

And this situation only gets worse for estates over £2m. 
 

Scott Gallacher, Director at Leicester-based Rowley Turton, said: "The Chancellor being your ‘favourite child’ is a concept I use with many clients — it really drives home the impact of inheritance tax. And the more children you have, the worse it looks. 
 

"I recently told one client that, on his death, each of his four children would get just 15% of his pension, while the Chancellor would take 40%. I use this not only to encourage IHT planning, but also to remind clients to enjoy their money. 
 

"As I said to him, if you and your wife spend £100 on a meal, it’s really only costing your children £15 each — barely enough for a McDonald’s. And with pension funds coming into the IHT net from April 2027, many more families will face this issue. If that’s you, it’s time to enjoy your money or speak to an independent financial adviser about your options."
 

Rakesh Dua, CEO at DUA Accountancy & Business Consultancy, gave some advice to people ahead of the inheritance tax changes.
 

He added: "Planning is the secret to most things and IHT is no different. Sadly the rules are getting harsher and the take from the taxman bigger. So you need to plan effectively, using exemptions, gifts, structuring your assets correctly and also making use of trusts. 
 

"Key to this will be understanding your goals, needs and the unique circumstances of your family situation. The longer the planning cycle, the more effective the outcome will be. 
 

"Make sure that it is done in a calm and sensible way so as not to affect your day-to-day living or control of key assets you need or want. Just as you might plan for your child’s education, so you now need to plan for family succession. The key is to help your wealth grow and plan well ahead for big events like the tax take at your funeral."
 

Samuel Mather-Holgate, Independent Financial Adviser at Swindon-based Mather and Murray Financial, described the tax as “sneaky”.
 

He said: "By bringing pensions into the IHT regime, freezing thresholds and cancelling some business property reliefs, Reeves has hit hard on inheritance. The death tax has got daggers and more and more people are paying it, and a lot more. IHT planning is definitely on the rise, but there are many people unaware of the new rules let alone planning for them. 
 

"Reeves knew people wouldn’t think about the consequences for pensions being brought into the tax system, and in general she was right. Politically it was a great move, but sneaky."
 

Rob Mansfield, Independent Financial Advisor at Rootes Wealth Management, added: "It's more Rachel from the Sopranos than Rachel from accounts. It's a double whammy if you're over the age of 75 as not only could you pay inheritance tax on the pension at 40% but the beneficiaries would then pay tax on any withdrawals at their marginal rates. 
 

"We need people to save more into their pensions and taxing people for doing the right thing seems perverse."