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Labour’s looming inheritance tax (IHT) raid on pension pots is becoming a growing concern for the British public. New research indicates that two in five Britons harbour concerns regarding imminent modifications to how pensions are treated for IHT purposes.
Nearly half of individuals aged 18 to 34 express apprehension about the proposed alterations, whilst the figure drops to 28 per cent for those over 55.
Almost seven in ten additional rate taxpayers report feeling troubled by the prospective changes. Similarly, 51 per cent of higher rate taxpayers share these concerns. Basic rate taxpayers show comparatively lower levels of unease, with approximately one-third indicating worry.
The research, undertaken by Opinium for Hargreaves Lansdown in May 2025, surveyed 1,200 participants across Britain.Ministers are proceeding with proposals to incorporate unutilised pension savings into inheritance tax calculations beginning in April 2027.
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Britons are concerned about the looming changes to inheritance tax
The Treasury has indicated that this reform aims to prevent pension schemes being utilised primarily as vehicles for wealth transfer rather than retirement funding.
Officials have published additional guidance clarifying implementation details whilst making certain adjustments to initial proposals announced during the Autumn Budget.
Government projections suggest affected estates will face supplementary tax liabilities averaging £34,000.
The changes are anticipated to generate approximately £1.34billion annually from 2028-29, substantially exceeding initial estimates of £640million for the first year of implementation.
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Inheritance tax is a levy on the estates of individuals who have passed away
Personal representatives will bear responsibility for declaring and settling any inheritance tax obligations on pension assets under the revised framework. This marks a departure from initial proposals that would have placed this duty on pension scheme administrators.
Pension providers must furnish estate executors with valuations of remaining pension funds and death benefits within four weeks of notification. They must also supply data necessary for tax calculations.
Beneficiaries receiving death benefits will share liability with personal representatives for settling tax dues. Specialists caution that the procedures could impose considerable strain on grieving families.
“Complications will no doubt arise where the family member cannot track down all of the deceased person’s pensions or where providers are slow to supply the information needed to work out the IHT bill,” said Steve Webb, partner at consultancy LCP and former pensions minister.
Rachel Vahey, head of public policy at AJ Bell, highlighted the time pressure families will face: “Bereaved families face a huge administrative burden, with the government insisting they settle the IHT bill within six months. Many people have complex financial affairs, especially those who die unexpectedly, meaning settling the bill quickly may not be straightforward.”
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, explained how the reforms disrupt existing strategies: “The Government’s plans to make unused defined contribution pensions subject to inheritance tax has thrown many people’s plans into disarray.”
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She anticipates behavioural shifts in response: “Instead of leaving pensions untouched until after death, it is likely that people will look to soften the effect of the tax by giving money away while they are alive.”
Morrissey noted several gifting strategies that may become more popular, including the £3,000 annual allowance and gifts from surplus income. “Gifts of any size leave your estate for inheritance tax purposes after seven years, so some will want to get that clock ticking down sooner rather than later,” she said.
She cautioned against hasty decisions: “However, it’s also important that you don’t fall foul of misconceptions around inheritance tax and take decisions you later come to regret.”
Standard inheritance tax exemptions remain unchanged. Estates below £325,000 escape taxation entirely, with an additional £175,000 allowance when passing property to direct descendants. Surviving spouses inherit unused allowances, potentially enabling tax-free transfers up to £1million.