Equity release adviser Key Advice said families facing potential IHT bills due to the change in the law from April 2027 may be confused about the most efficient way to gift their wealth. Alternatively, the broker said they risk gifting too much of their pension pot to mitigate a potential tax bill and ending up putting their own financial security at risk. Currently, unused pension wealth is exempt from IHT. This leaves families the option to leave behind any retirement savings or assets stored within a pension wrapper to loved ones without the risk of breaching the IHT threshold of £325,000, as it falls outside the estate for the purposes of the IHT calculation.

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A 40% tax is levied on the value of the estate above the threshold. An additional allowance known as the residence nil-rate band – worth £175,000 – increases the threshold to £500,000 if you pass your main home to a direct descendent.

The government estimates the inclusion of unused pensions in IHT from 6 April 2027 will generate an additional £3.44bn in IHT receipts in the first three tax years it operates.