Labour’s Pension Inheritance Tax Plan Could Yield £40bn Over Two Decades

Starting in 2027, inherited pensions will be subject to inheritance tax, potentially generating billions annually according to new analysis.

From April 2027, unused pension savings will be included in inheritance tax calculations, ending their current exemption status.
Initial government estimates project £640m in revenue in the first year, rising to £1.46bn annually by 2029-30, but independent analysis suggests long-term revenues could exceed £40bn over 20 years.
The surge in defined benefit pension transfers in the late 2010s is expected to drive significant tax revenue as these pensions are inherited in coming decades.
Critics argue the changes will discourage pension savings and could lead to higher combined tax rates for some beneficiaries, potentially reaching up to 90% in certain cases.
The Treasury defends the policy as a measure to ensure pensions are used for retirement rather than wealth transfer, emphasizing that most estates will remain below the inheritance tax threshold.