The Treasury is poised to rake in billions of pounds annually due to the “gold mine” of inheritance tax on pensions, experts have revealed.
A new change, set to take effect in April 2027, is expected to generate £640 million in its first year, followed by £1.3 billion in 2028-29 and nearly £1.5 billion in 2029-30.
However, estimates by financial firm LCP suggest that these figures will rise sharply throughout the 2030s and beyond, potentially exceeding £3 billion annually at its peak. Over the next two decades, the total revenue from this change could “easily” surpass £40 billion, according to analysts.
Tim Camfield, a senior consultant at LCP, commented: “Applying inheritance tax to pension balances could prove to be a real gold mine for the government for many years to come. The surge in defined benefit pension transfer activity, which we witnessed in the late 2010s, will dramatically increase the number of people whose estates include significant direct contribution pension balances.”
He added: “Some may react to the tax changes by drawing down on their pension assets faster, but that will still generate significant tax revenue, as such withdrawals will be subject to income tax. Either way, as the direct benefit transfer generation ages, the government will start to see a multi-billion-pound revenue stream from income tax or inheritance tax on their pension pots.”
Experts predict that tens of billions in tax—either from inheritance levies upon death or income tax if individuals withdraw their pensions early—will be imposed on Britons in the coming years.
Notably, none of this revenue is reflected in the Treasury’s Red Book, which outlines the government’s budget, as it only provides revenue estimates up to 2029-30—before the “real revenues start to flow.”
Chancellor Rachel Reeves has faced renewed calls to scrap “Britain’s most hated tax” as inheritance tax receipts continue to soar. Inheritance tax bills totaled £6.3 billion in the nine months to December—£600 million higher than the same period the previous year.
The Office for Budget Responsibility (OBR) expects inheritance tax receipts to reach £8.3 billion in 2024-25 and a staggering £13.9 billion by 2029-30.
Several changes to inheritance tax were announced in the Chancellor’s first budget in October. These included an extension of the freeze on inheritance tax thresholds, which will now remain unchanged for an additional two years until 2030.
Currently, around 4% of deaths result in an inheritance tax charge, but this figure could rise to 10% by 2030.
Additionally, Agricultural Relief and Business Property Relief have been reformed. From April 2026, the first £1 million of qualifying combined assets will be exempt from inheritance tax. However, for assets exceeding £1 million, a 50% relief will apply, resulting in an effective tax rate of 20%.
Furthermore, inherited pensions could be subject to inheritance tax starting in April 2027.
