The 2027 inheritance tax changes matter more for accountants

Easter Monday saw revisions to Agricultural Property Relief (APR) and Business Property Relief (BPR) - the government’s headline changes to UK inheritance tax (IHT) - go live.

18 months in the making, you’ll have done well to have missed the widespread coverage around one of Labour’s most significant moves. However, the changes are only the first part of substantial reform to the IHT framework - and it’s the second wave arriving in 12 months that accountants should be paying closer attention to.

From 6th April 2027, unused pensions and death benefits will no longer be exempt from IHT. The inclusion of these assets in taxable estates will have a much more far-reaching impact than the new agricultural reforms, with approximately 50,000 estates set to be affected.

From an accountant’s perspective, this means significant changes in reporting responsibility and opportunities to add value through advisory services.

A reminder of the new and upcoming changes to IHT

As of 6th April 2026, previously unlimited relief on APR and BPR has been capped at a combined £2.5m - though this is transferable between spouses and civil partners, meaning couples can pass on up to £5m of qualifying assets tax-free. Any value above this threshold will receive 50% relief, and therefore be taxed at an effective rate of 20%.

From 6th April 2027, the full value of unused pension funds and death benefits will be added to IHT calculations on any estate. Previously exempt, they will now contribute to nil-rate band (NRB) and residence nil-rate band (RNRB) limits.

Why are the 2027 IHT changes a bigger deal for most accountants?

For those affected by the 2026 changes to APR and BPR, the impact is set to be significant. Indeed, if you’re an accountant managing high-value agricultural and business assets, big challenges await - particularly around administrative capacity. However, most firms are unlikely to handle such clients, with HMRC estimating that around only 1,100 estates will pay more each year.

The 2027 pension changes will cast a much wider net. Government estimates suggest around 50,000 estates annually will pay more IHT. Over 20% of these are set to face IHT liability which they wouldn’t under existing rules.

Essentially, the 2026 changes carry high-value impact for a select few, while the 2027 changes represent a substantially higher volume issue that’s much more likely to find its way to your desk in the coming years.

The impact of the 2027 IHT changes for your clients

Despite the 2027 revisions carrying a much greater potential impact for the everyman, a recent Standard Life survey indicated that nearly nine in 10 UK adults have little or no awareness about the upcoming changes. Even among Generation X respondents - those most likely to feel the immediate effects - only one in seven have a “good” understanding of IHT.

With one in ten estates expected to exceed the newly calculated IHT threshold by 2030, it’s essential those affected are bracing for impact. Here’s the knowledge to arm your clients with.

Who’s affected?

Virtually anyone with a defined contribution pension or a Self-Invested Personal Pension who dies with funds remaining in those pots.

Who’s most exposed?

Current estimates suggest 10,500 estates will pay IHT where they previously wouldn’t have, with another 38,500 paying more IHT than they would previously. Perhaps most at risk, though, are those whose total wealth - now including their pension - is in danger of exceeding the RNRB taper of £2 million.

As a reminder, current NRB and RNRB bands sit at £325,000 and £175,000, respectively - a combined £500,000 tax-free allowance that doubles to £1 million for couples.

Once the value of the estate passes £2 million, every £2 over loses £1 of the RNRB. That means the addition of a substantial pension pot could decimate the £175,000-£350,000 allowance for many middle-class families.

The ‘double-tax’ issue

Arguably the biggest hit for those affected by the 2027 reforms, some pension withdrawals made by beneficiaries will be subject to both Income Tax and IHT under the new rules.

Current rules dictate that if a person passes away after the age of 75, their beneficiaries pay Income Tax on any pension withdrawals. With the new regulations adding pension funds to the taxable estate, such funds would be hit by the 40% IHT rate first, with the remainder subject to Income Tax. In some instances, this will create an effective tax rate of upwards of 60% on qualifying pots.

What the 2027 IHT changes mean for you

It’s important to understand the changes will come with reporting and probate burdens that you’ll need to be ready to take on. There will, however, be opportunities to add value to your advisory service, as you find more clients in need of up-to-date guidance.

Reporting gets heavier, and probates could get messier

When initially announced at Autumn Budget 2024, the government decided that pension scheme administrators (PSAs) would be responsible for the reporting and payment of any IHT on pensions. However, following a technical consultation, liability was reverted to Personal Representatives (PRs) in July 2025.

This means the new pension reporting elements will fall at your doorstep, plus potentially painful pension pot chasing in the probate process will add to your administrative burden. Your back office will need to be optimised to handle these new responsibilities.

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Planning ahead - changing spending rules and Income Tax refunds

The traditional best practice of ‘spending the pension pot last’ is likely to be scrapped. You’ll need to review the consultation process you share with your clients regarding how they spend their money - and where their pensions now sit in the order. New consultation opportunities will also arise around the ‘double-tax’ issue on eligible pension pots, too.

Perhaps most important will be making sure your administrative ducks are in order. With 50,000 newly affected estates passing through the accountancy market each year, making sure the fundamentals of your practice admin are working efficiently (for example, having your payments fully automated) will be key.

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The common theme between this and next year’s IHT changes will be the increased admin burden for affected accountants. For most, that’s likely to come via the 2027 pension wave rather than in the wake of the new APR and BPR caps, but either way, it pays to be prepared.

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