Proposed changes to inheritance tax could see thousands of UK households facing significantly higher tax bills, with pension savings now at risk of being included in estates for tax purposes.

International tax consultant Andy Wood, from Tax Natives, has warned that the reforms, expected to take effect from 2027, could pull an additional 38,500 estates into the inheritance tax net, leaving families with an average bill of £34,000 unless they take action now.

Wood says: “The proposed changes to inheritance tax could fundamentally alter the way families use pensions in their financial planning. Historically, pensions have been a vital tool for preserving wealth across generations, but the inclusion of pension assets in the inheritance tax net from 2027 could make them a significant tax liability. This is a huge departure from the current system and will impact thousands of families.

“If pension assets are included in inheritance tax calculations, we could see a substantial increase in estates paying inheritance tax. Many families that previously considered themselves outside the scope of this tax will now face average bills of £34,000 or more. Those who may be affected should act now to avoid these potential costs.”

He “adds: A key concern is the prospect of double taxation – once through inheritance tax on the value of pension assets and again when beneficiaries pay income tax on pension withdrawals. This double hit could seriously deplete the value of savings intended for loved ones.

“For families with estates worth over £2 million, the challenges are even greater. The loss of the residence nil rate band—designed to protect the family home from hefty tax bills—will push inheritance tax liabilities even higher. Early planning, such as gifting assets or restructuring estates, is important for avoiding these burdens.

“These changes highlight the importance of looking for professional advice to understand the implications and take proactive steps. From making use of lifetime gifting allowances to restructuring wealth outside of pensions, there are options available to help families safeguard their financial legacies.”

Tax Natives is an international tax network that connects taxpayer clients with qualified and regulated tax advisers, from one jurisdiction to another.