One year out from a major overhaul to pensions inheritance tax (IHT) rules, 89% of adults have little or no awareness of the change, new Standard Life research finds.
Announced in the 2024 Autumn Budget, the reforms mean that from April 2027, most unused pension funds and death benefits will fall within the scope of IHT, becoming part of an individual’s taxable estate. Government estimates an additional 10,500 estates will be brought into paying IHT due to the change in 2027/28, with around 38,500 estates facing higher IHT bills than under previous rules.
While the initial impact will be felt from 2027, the combination of a frozen IHT nil-rate band until 2031, rising property prices, and growth on investments means many more families are likely to be affected in the years ahead. The OBR forecasts IHT receipts to reach £14.5bn by the end of 2030/31, an increase of around 67% from 2025/26.
Standard Life modelling shows that if the nil-rate band had risen in line with inflation since its freeze in 2009, it would be around £200,000 higher in 2026/27 than its current level (£527,666 vs £325,000). And looking ahead to the end of the freeze in 2030/31, the nil-rate band could be around £270,000 higher (£593,893 vs £325,000). As with the income tax freeze, the frozen nil-rate band creates a ‘fiscal drag’ effect, with more estates being pulled over the IHT threshold as asset values rise.
Who’s affected?
The immediate effects are likely to be felt by Gen X, the generation currently most involved in supporting older relatives and managing intergenerational wealth. However, the research shows a substantial knowledge gap among this cohort, with only one in seven Gen X adults saying they have a ‘good’ understanding of how IHT works.
Industry support will be crucial moving forward. Overall, 30% of adults think their estate will exceed the IHT threshold, rising to 40% of Millennials and 36% of Gen Z. Even among those who may ultimately fall below the threshold, the current lack of understanding highlights the importance of clear insight, guidance and advice.
Neil Jones, tax and estate planning specialist at Standard Life, said: “With the clock ticking on the final year before pensions fall within the scope of inheritance tax, it’s concerning, though not surprising, that awareness of the change remains so low. Most estates currently fall below the thresholds for paying IHT, which can be up to £1 million for a surviving spouse with a home, so individuals and their families often only engage with IHT when they have to. But by 2030, around one in ten estates are expected to exceed the threshold, so IHT will be something far more people will need to understand and plan for.
“With an estimated £5.5 trillion expected to pass between generations in the next 30 years, many people who never anticipated facing IHT may soon find themselves navigating complex financial and estate planning decisions. The pensions and wider industry have a key role in offering clarity on the tax rules, practical guidance, and the insight individuals need to manage their estates effectively. Professional financial advisers and estate planners play a crucial role in helping families understand how they might be affected by IHT and creating tax efficient plans.”
