Rachel Reeves inheritance tax change leaves families ‘exposed’ | Personal Finance | Finance

An inheritance tax change could see families across the country exposed as Rachel Reeves announces a series of system reformations. Defined contribution pensions will be subject to IHT, which has a standard rate of 40%, from April 6 next year.

An estimated 10,500 estates will pay IHT for the first time as a result, according to Government numbers. However, the Treasury says that over 90% of estates per year will continue to pay zero IHT after the changes. HMRC will begin a public campaign to explain the changes to everyone affected towards the end of this year. Following that, it will publish final official guidance and support materials in spring 2027.

These changes were flagged by TIME Investments representative Tom Mullard, who warns that the changes will affect not just the very wealthy, but the average family too.

He told the Daily Express: “These changes mean estate planning is no longer something only relevant to the very wealthy. Many more families will need to assess potential liabilities earlier than they might have expected, potentially requiring support from financial advisers who may use tools such as TIME’s Inheritance Tax Calculator to understand their position.

As well as this, attorneys acting under Powers of Attorney may also need to understand the implications for vulnerable relatives. There is also a practical concern around liquidity. Inheritance Tax must typically be paid within six months of death, yet pension assets may not always be accessible within that timeframe, potentially leaving families exposed to punitive interest rates on unpaid tax.

“Ultimately, education and awareness will become increasingly important for families, individuals and advisers, particularly as other planning options such as trusts and business relief may need to be considered far more proactively.”

This bill would increase the likelihood of receiving an “unexpected” tax bill during a bereavement process, Mullard warned. He said: “Since the changes implemented from 6 April 2026, the ability to manage IHT using Business Relief has shifted, significantly in some situations.

“Previously, qualifying unquoted shares and AIM investments could attract 100% IHT relief, but this has been capped at £2.5 million per individual for unquoted shares, with only 50% relief available above that threshold, and only 50% for any size of AIM investment.. While couples can still transfer allowances if unused, giving a total allowance of up to £5 million, many business owners and investors could face higher tax than expected.

“The changes to pensions from April 2027 are likely to have an even bigger impact. Pension pots have previously sat outside the estate for IHT purposes, but they will soon become chargeable on death, bringing substantial additional wealth into the IHT net. As a result, many individuals who previously believed they were below the threshold may suddenly face an unexpected potential inheritance tax bill.”