Steve Gauke says labor pension inheritance tax reform will change how families use pensions from April 2027, bringing most unused pension funds into the scope of inheritance tax. He wrote that the change will alter how people use their pensions and can put many into difficult positions.
The government estimates that around 10,500 estates will pay inheritance tax for the first time in 2027 to 2028, with a further 38,500 estates paying more. It also expects the average inheritance tax bill to rise by around £34,000.
Steve Gauke on pensions
Gauke’s warning points to a practical problem as much as a tax change. Families who have treated pensions as a way to pass wealth to the next generation may now have to plan for more of that money to fall within inheritance tax rules.
That alters the order in which cash has to move. Inheritance tax is generally due by the end of the sixth month after death, and executors usually need to pay the tax, or the first instalment where instalments are permitted, before obtaining probate.
April 2027 deadline
Beneficiaries can already wait six to 12 months for their inheritance. Under the new rules, they may only be able to access around half of the affected pension benefits for up to 15 months, creating a gap between when tax is due and when money can be used.
Families may have planned around the old legislation, but many may not realise they are affected until it is too late to prepare. That leaves a simple priority: check the documents now, speak openly about inheritance, and take independent financial advice if pension wealth is part of the estate plan.
The question now is not whether the rules will change, but whether families move early enough to avoid a payment squeeze once April 2027 arrives.
