Bringing pensions into inheritance tax (IHT) calculations could significantly expand the number of people in the UK facing a tax bill, with 152 local authorities newly falling into scope, according to The Private Office (TPO).
From 6 April 2027, most unused pension funds and death benefits will be included within an individual’s estate for inheritance tax purposes under the proposed reform, with more estates exceeding £325,000 or up to £500,000 where the main residence is left to direct descendants that will face a 40% charge on the excess.
By combining average property prices across 372 local authorities with estimated pension pot values based on median earnings, TPO has identified 152 areas that were previously below the IHT threshold but could become taxable once pensions are included, bringing the total number of local authorities with potential inheritance tax exposure to 288.
Pippa Vick - Financial Adviser at The Private Office (TPO), said: “Inheritance tax is increasingly becoming a property tax by default. Many families don’t consider themselves wealthy, yet long-term house price growth – particularly in London and the South East – means their estates can face substantial tax bills.
“Pensions have long sat outside inheritance tax calculations, so bringing them into scope has a major regional impact. In high-property-value areas, the effect is dramatic, but even in more affordable regions, families who previously expected no inheritance tax may now face a bill. Planning early will be crucial.”
The highest potential inheritance tax bills remain concentrated in prime London boroughs and most affluent southern areas. Kensington and Chelsea could see average estate values exceed £1.3m, with estimated IHT liabilities above £400,000 once pensions are included from currently an estimated £343,924. Camden, Richmond upon Thames, Elmbridge, and Hammersmith & Fulham all show projected tax bills comfortably above £200,000. Wider commuter-belt locations such as Guildford, St Albans, Windsor & Maidenhead, and Wokingham also remain firmly within taxable territory.
