Millions of people are being urged to check the value of their estate before pension changes take effect in April 2027, when most unused pension funds and death benefits are expected to become part of an estate for Inheritance Tax purposes.
Research Reveals Widespread Underestimation
New research from savings platform Flagstone, which surveyed 2,000 UK homeowners aged 45 and over, suggests many homeowners may be underestimating the value of their estate. This means some families could be unaware they are approaching or exceeding the tax-free thresholds.
According to the research, nearly a third of women have estates worth more than £500,000, yet only one in 10 have calculated whether they could be liable for Inheritance Tax. More than eight in 10 women said they had never calculated their potential liability.
The research also found many women underestimate the value of their estate, with more than half saying they "get by but have little money left over" despite the average value of their estate being around £380,000.
Pension Changes from April 2027
The warning comes ahead of significant changes announced by the UK Government, which plans to bring most unused pension funds and death benefits within the scope of Inheritance Tax from April 2027. The change means pensions, which have traditionally sat outside many estates for Inheritance Tax purposes, could increase the overall value of an estate when someone dies.
Inheritance Tax is normally charged at 40 per cent on the value of an estate above the available tax-free thresholds, although the amount due depends on individual circumstances and any reliefs that apply.
The standard nil-rate band has remained frozen at £325,000 since 2009. Many people may also qualify for the residence nil-rate band when leaving their home to direct descendants, potentially increasing the amount that can be passed on before Inheritance Tax becomes payable.
Rising Tax Receipts Expected
The Office for Budget Responsibility (OBR) expects Inheritance Tax receipts to continue rising over the coming years. It forecasts receipts will increase from around £9 billion in 2025-26 to approximately £15 billion by 2030-31 as more estates are drawn into the tax.
Katie Horne, savings expert at Flagstone, said: "Taking a step back and looking at your estate as a whole can be an important first step, especially when so much of the value is spread across several assets. That can make it difficult to build a clear picture of how much your estate is worth, or how close it may be to the Inheritance Tax threshold. With tax changes coming into effect from April 2027, having a clearer understanding is only going to become more important."
Simple tools like Inheritance Tax calculators can help build an initial picture. For those with more complex estates, or where there's any uncertainty, speaking to a financial adviser can help bring the full picture into focus.
People concerned they could be affected should consider the value of their property, pensions, savings, investments and other significant assets to build a clearer picture of the size of their estate before the changes take effect next year.
