New regulations mean unspent private pensions will be subject to inheritance tax (IHT) for deaths occurring after April 6, 2027, as part of reforms introduced under the Finance Act 2026.

Malcolm Scott Walby, a consultant solicitor at Dorset law firm Ellis Jones Solicitors, said: “The latest inheritance tax reforms are a kick in teeth for all of those people who have worked hard to build up their pension pots.”

Previously, unused private pensions could be passed on death free of inheritance tax.

Malcom Scott Walby – Consultant solicitor at Ellis Jones Solicitors (Image: Deep South Media)

Under the new rules, these funds will be treated as part of the taxable estate and subject to 40 per cent IHT.

Executors will be expected to take ‘reasonable steps’ to locate, value, and report all pension savings, and ensure the correct tax is paid.

Mr Walby said: “It reverses years of guidance promoting pensions as a safe and prudent way to plan for the future, so people could be forgiven for feeling aggrieved.

“The new rules are going to affect a great deal of people, some who may already be rapidly changing their retirement planning before the changes come in.

“The key is to be proactive and take professional advice so that a strategy can be put in place.

“There are measures which can be taken to reduce liabilities and shield wealth for the next generation.

“Those who fail to act and take advice now can have no excuse later on.”

Inheritance tax is charged at 40 per cent on assets above £325,000, with an additional £175,000 allowance for those passing on a main residence to a direct descendant.

The changes introduce a new section, 150A, to the Inheritance Tax Act 1984, specifying that ‘notional pension property’ will form part of the estate for IHT purposes.

Some exemptions remain, including spouse and civil partner allowances and joint life annuities.

Married couples and civil partners can combine allowances to shield up to £1 million.

Chris Pemberton, partner at Ellis Jones Solicitors (Image: Deep South Media)

Chris Pemberton, a Partner in Will, Trust & Probate at Ellis Jones, said: “The legislation is extremely complex, which is why it is so important to take expert advice to mitigate the impact of Inheritance Tax on your estate.”

The Society of Pension Professionals has urged HMRC to clarify the rules, warning that the current approach could cause delays and confusion for bereaved families.

Analysis from investment platform Transact suggests that five million households could be affected by the changes, though this figure has been disputed by the government.