Two-fifths (40 per cent) of people are worried about upcoming changes to pensions and inheritance tax (IHT), set to be introduced from April 2027, according to data from Hargreaves Lansdown (HL).

The government recently confirms its plans to make unused defined contribution (DC) pensions subject to IHT, although it has made changes in response to industry feedback, deciding that lump sum death in service benefits are not to be brought into scope of the new IHT regime after all.

However, the new plans remain a concern for many, with research from HL revealing that this is a concern for 28 per cent of people aged over 55, rising to almost half (48 per cent) of those aged 18-34.

In addition to this, it found that almost 70 per cent of additional-rate taxpayers were worried about potential changes, as were 51 per cent of those paying higher-rate tax, while around one-third (34 per cent) of basic-rate taxpayers were also concerned.

Hargreaves Lansdown head of retirement analysis, Helen Morrissey, said potential changes to IHT had thrown many people’s plans into disarray.

She explained that the current position, whereby pensions are not usually subject to inheritance tax, had led many people to opt for spending down other assets first and leaving their pensions untouched for as long as possible so that they could be passed on to loved ones in a very "tax-efficient" manner.

Now, she suggested, instead of leaving pensions untouched until after death, it is likely that people will look to mitigate the tax effect by giving money away while they are alive.

“Gifts of any size leave your estate for inheritance tax purposes after seven years, so some will want to get that clock ticking down sooner rather than later,” she continued, adding that there is also an array of allowances that enable you to gift assets away and they move out of your estate immediately, such as gifting out of surplus income.

However, Morrissey warned savers against “falling foul of misconceptions” around inheritance tax and taking decisions they later "come to regret."

“For instance, inheritance tax is only paid on estates worth more than £325,000 – this is known as a nil rate band,” she explained.

“Added to this, if you are passing on the family home to children or grandchildren, you have a further £175,000 at your disposal.

“Assets of any value can be passed between spouses free of inheritance tax, and the survivor can also inherit any unused nil rate bands. This means that a surviving spouse or civil partner can potentially pass on up to £1m free of inheritance tax.

“This is why only a relatively small percentage of people actually have an inheritance tax bill, so bear this in mind before making plans, as you may be worrying unnecessarily,” concluded Morrisey.

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