Cohabiting couples who are not married could face an inheritance tax bill of over £82,000 from 2027, according to new analysis from Quilter.
Calculations from the wealth manager suggest that a working-age single homeowner in England with an average priced property worth £290,395 and a moderate pension pot of £415,000 would face an IHT bill of £82,158, even if they die before reaching pension age.
Under changes announced in the Autumn Budget, pensions will be brought into the IHT scope from April 2027.
Currently, unspent pensions are typically passed on tax-free if the saver dies before age 75. However, HMRC has confirmed that from April 2027, pension savings will count towards a person’s estate for IHT purposes regardless of age at death.
This means that cohabiting families with young children, who do not benefit from the spousal exemption or a transferable nil-rate band will be far more exposed.
In many cohabiting households the property is jointly owned meaning only half its value is included in the estate, however this would still result in an IHT bill of £24,079 as a result of the pension inclusion.
Bills are higher for those living in more expensive parts of the country. For example, in London sole ownership of an average-priced home worth £565,637 plus a £415,000 pension creates an IHT bill of £192,254 in 2027. If the home is jointly owned, that falls to £129,127.
Jon Greer, head of retirement policy at Quilter, said: “Charging inheritance tax on a pension someone could not access and will never be able to use due to passing away before the minimum pension age is optically terrible for the Government.
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