The chancellor Rachel Reeves used the first Labour Budget for 14 years to announce that inherited pensions would be subject to inheritance tax (IHT) from 2027.

The current inheritance tax threshold will also be extended to 2030, having stood at the same rate since 2009. Tax is charged at 40 per cent on the value of estates above £325,000. There is also an additional allowance of £175,000 if you have a main residence which passes to direct descendants but there are complicated rules around this.

It was a long-held belief that inheritance tax would be an easy target for a chancellor looking to raise funds without amending income tax. Pensions are often the second biggest asset after property for many successful professionals and will now be subject to the same IHT rules if passed to inheritors other than spouses.

There is an important distinction here however – this policy will mainly impact private pensions or defined contribution schemes. The rules also extend to defined benefit schemes but normally only a spouse benefits from these so the spousal exemption would mean no IHT is levied.

As with any new policy proposal, we will be checking the fine print to check how this may impact the NHS pension.

The government has published a consultation on the IHT proposal which is due to conclude in January. The Treasury predicts the policy will raise £1.5bn per year by 2029/30.

Wealthy savers with NHS pensions in payment usually tap into their private pensions last in later life, preferring to use alternative sources of income if available and to allow pensions to be passed to their loved ones. It is probable we will see a change in behaviour as individuals decide to use their pension pots to avoid further taxation.

Are you worried about your personal pensions or estate planning? Call our adviser team on 020 7636 7006 to talk through your options.