A major overhaul of UK pension taxes is projected to increase bills by an average of £34,000 for affected families. The new tax charge, first announced in Labour's 2024 Budget, means HMRC will treat "most unused pension funds" as part of a person's estate for inheritance tax purposes from April 2027. This is expected to drag an estimated 10,500 additional estates into paying the 40 per cent levy.
Campaign to block changes
A petition has been set up to try and block the changes. Members of the public have only a few weeks to sign their support on the petition website to halt the plans.
The petition text warns: "We ask the Government to reverse the planned change in April 2027 to include someone's private pension into their estate estimate for inheritance tax. In our view this disproportionately penalises single or unmarried couples due to £325,000 individual tax allowance (plus £175,000 if house goes to children)."
How inheritance tax allowances work
Inheritance tax works with individual allowances, so each person can pass on up to £325,000 in total assets tax-free, as well as another £175,000 when passing your main residence to a direct descendant. Married couples and civil partners can transfer unused allowances to pass on up to £1 million tax-free.
Meanwhile, those who have never tied the knot only get up to £500,000 in allowances. So if you missed out on the double allowances, your successors may have to pay an extra £200,000 in tax compared to couples passing on their possessions.
'Huge tax bill'
The petition also argues that frozen tax thresholds are dragging average savers into a tax system originally meant for the wealthy. The message urges: "We believe the inheritance tax was originally a tax for the rich only, those who had mansions, estates and land."
"However due to frozen limits, fiscal drag etc., it now brings even low/middle earners into paying inheritance tax, especially if the private pension is included in their estate, as planned for April 2027. We think it also disproportionately affects single parents or unmarried couples due to the limit for tax free allowances. A person with just an average house, who saved for retirement could end up with a huge tax bill."
Even with the changes, most estates will not have to pay the 40 per cent tax. You can sign your support on the petition website.
