Pension IHT changes to drag 152 new local authorities into tax net

Bringing pensions into inheritance tax (IHT) calculations from April 2027 will result in 152 local authorities newly falling into scope of the tax, analysis from The Private Office (TPO) has shown.

By combining average property prices across 372 local authorities with estimated pension pot value based on median earnings, TPO estimated that 152 areas that were previously below the IHT threshold on average could become taxable once pensions are included.

This would bring the total number of authorities with potential IHT exposure up to 288.

From April 2027, most unused pension pots and death benefits will be included in estates when calculating IHT exposure, resulting in more estates facing IHT charges.

Kensington and Chelsea is currently the most expensive local authority for IHT in the UK, with the average property generating an estimated £343,924 IHT liability.

This would rise to around £405,211 when pensions are included, with total average estate values exceeding £1.3m.

Other London boroughs Camden, Richmond upon Thames, Elmbridge, and Hammersmith & Fulham all had projected IHT bills above £200,000.

Pensions coming into scope of IHT could have the greatest impact in mid-priced regions in the Midlands, South West, and East of England, TPO found.

Areas such as Stevenage, Tewkesbury, Warwickshire, and Gloucestershire currently sit below IHT thresholds based on property values alone, but are dragged into the net once estimated pension pots are included.

Average estates in these areas could face IHT bills of between £10,000 and £60,000, according to the analysis.

“IHT is increasingly becoming a property tax by default,” said TPO financial adviser, Pippa Vick.

“Many families don’t consider themselves wealthy, yet long-term house price growth – particularly in London and the South East – means their estates can face substantial tax bills.

“Without proper planning, beneficiaries may be forced to sell assets simply to settle the liability. Early advice and structured estate planning can significantly reduce the eventual tax burden.

“Pensions have long sat outside IHT calculations, so bringing them into scope has a major regional impact.

“In high-property-value areas, the effect is dramatic, but even in more affordable regions, families who previously expected no inheritance tax may now face a bill. Planning early will be crucial.”

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