The IHT net is widening to include private pensions that are not yet used – and those who aren't married or in civil partnerships must guard against the risk of a tax bill at what is already an emotional time, advisors say.

Pensioners are increasingly asking for access to their pension pots to sidestep inheritance tax being applied to unused pension wealth from April next year, advisors say. For those who aren’t married or in a civil partnership, there are risks.

From the start of April 2027, most unused pension wealth will fall within the scope of inheritance tax, meaning that unused pensions could face a 40 per cent IHT charge.

For unmarried couples, inheritance tax raids are particularly bad news, even for younger couples, because unused allowances cannot be transferred unless it is between spouses. The partner of a working-age homeowner with an average-priced property and moderate pension pot could face a heavy IHT bill, even if this is before reaching pension age.

“Pensions are often the second biggest asset a couple owns, after the family home, and as such can be key players in financial planning. The changes will mean that unused pensions will now be included under the scope of inheritance tax,” Ciara Pugh, partner at Stowe Family Law, said in a recent note.

“Unmarried couples may be more at risk financially as they currently do not have the same tax relief as married couples. Spouses, including those in a civil partnership, benefit from tax exemptions, including inheritance tax. When the change to inheritance tax is implemented, spouses will be exempt from the tax upon the death of their legal partner, where unmarried couples (cohabitees) may not be,” she continued. “Unfortunately, many people still believe that by virtue of living together they are entitled to the same financial protections and legal rights as married couples. This is a myth but remains pervasive under the guise of the ‘common law marriage’.”

UK finance minister Rachel Reeves' move to add unused private pensions to the tax net came alongside her widening IHT to cover family-run businesses and farms. Inheritance tax is a political flashpoint – defended as a necessary corrective to wealth inequality, and damned as taxing wealth that has already been taxed several times. The “nil-rate” band for IHT for an individual is £325,000, and that figure has not changed for several years. As a result, more people have been dragged into the net, and the revenue haul has increased – which a debt-laden government welcomes. IHT receipts for April 2025 to March 2026 were £8.5 billion, which is £200 million higher than the same period last year, marking another record-breaking year for the tax take.

The tax change means that unmarried couples and those who haven’t formalised their relationships are vulnerable to a tax hit, Pugh said.

“There are a couple of options available to unmarried HNWs. The most obvious option is for couples to get married or enter a civil partnership. This provides multiple tax planning benefits including around pensions,” Pugh continued.

“Speaking to a financial planner is essential, as they will be able to advise as to the best course of action, whether this is through lifetime gifting to reduce the overall value of the estate, or withdrawing pension funds before, or at the same time as, other taxable assets,” she said.

Looming problem
Other advisors have warned of a looming problem if potentially-affected citizens don’t prepare.

"The two most common mistakes I see are married couples assuming all assets go to each other and non-married couples not considering what will happen without a will, which can be a major issue for women without any personal assets,” Rebecca Robertson, independent financial advisor, planner and director at Evolution Financial Planning, said. She said people make a series of assumptions about what will happen with their assets when they die.

"The majority of people like to hope for the best and, only when they have to deal with a family's estate when someone has passed away, do they realise the complexity of it all. One milestone when people do recognise they need a will is when they have children, but this is generally at a time when finances are straightforward,” she said.

"Often over time the will becomes old and out of date. Again, only years later when they are dealing with another family member or they come across an issue, will they act. If they haven't, they have missed an opportunity. This is going to be even more important post-April 2027, when pensions become part of the estate,” Robertson said.

In a note last week on the market data and information service Kalkin, it said UK families could "face long and unsettling delays" in trying to get hold of pension money left by a loved one. The article said that HMRC, the tax authority, has indicated that pension scheme administrators may be required to work with personal representatives to calculate and report any IHT due. This will add to the necessary steps before pension money can be released.