An expert warned the new 40 percent tax could cause ‘distress’
05:03, 25 Nov 2025Updated 07:38, 25 Nov 2025
LONDON, ENGLAND – NOVEMBER 04: Chancellor of the Exchequer Rachel Reeves delivers a speech in the media briefing room of 9 Downing Street, ahead of the forthcoming Budget, on November 04, 2025 in London, England. During her speech Rachel Reeves put the country on notice that tax rises are coming in the upcoming Budget saying “each of us must do our bit”. The Chancellor declined to recommit to Labour’s manifesto commitments not to raise income tax, national insurance or VAT, saying “we will all have to contribute”. (Photo by WPA Pool/Getty Images)(Image: Getty)
A pensions expert has warned that a major new tax on pensions could cause huge upset for families. Chancellor Rachel Reeves announced at the Autumn Budget 2024 that pensions would become subject to inheritance tax.
The 40 percent tax applies to the total inherited assets you receive, above certain allowances. So if this was applied to all of a pension pot valued at £20,000, your successors would have to pay £8,000 tax to HMRC.
The Government has set out that the new tax will come in from April 2027. But a finance expert warned there are several things that still need to be confirmed about how the policy will work.
READ MORE: Rachel Reeves to address benefit fraud crackdown in Budget
Mark Plewes, head of Pensions Technical at WBR Group, said: “The timetable is ambitious, and there are still unanswered questions about how the rules will work in practice, particularly around valuations, reporting, and payment deadlines. If these complexities aren’t resolved, a delay would be sensible to avoid chaos for personal representatives and pension providers.
“We’ve urged policymakers to prioritise clarity and practicality over speed, because getting this wrong could create significant administrative burdens and distress for bereaved families.”
Mr Plewes encouraged those who may be affected by the new tax to look over their finances now. He said: “If you have a significant pension pot and other assets, it’s vital to review your estate planning now.
Pensions will become subject to inheritance tax from April 2027(Image: Getty)
“This might include updating your will, revisiting your expression of wishes forms, and considering strategies such as lifetime gifting or using life assurance to cover potential liabilities. Every individual’s circumstances are different, so professional advice is essential to balance inheritance tax exposure with income needs in retirement.
“Acting early gives you more options and avoids rushed decisions later.” A previous Government consultation on the proposals outlined: “Most unused pension funds and death benefits will be included within the value of a person’s estate for inheritance tax purposes and pension scheme administrators will become liable for reporting and paying any inheritance tax due on pensions to HMRC.”
As speculation mounts about what changes there could be in the Budget this year, one expert is calling for a fundamental overhaul of pension tax relief to boost UK investment. Nishi Patel, managing director at accountancy firm N-Accounting, said: “I don’t think the tax benefits on pensions are too generous; however, the freedom of investment definitely is.
READ MORE: DWP warns claimants not to share three details about themselves
“Why should I be getting UK tax relief on my investments when most of them aren’t in the UK? The Government needs to steer the investment into British shares and government bonds and not allow tax relief for non-domestic products.”
As things stand, your pension contributions receive tax relief matching your marginal income tax rate. For those on the basic 20 per cent rate, this means 20 per cent tax relief on your contributions, so for every £80 contributed, the Government adds £20, bringing the total to £100.