Burnham’s Inheritance Tax Plan: 10% Rise and Pension Changes From April 2027

Andy Burnham’s government is preparing major changes to inheritance tax that will affect millions of UK households. From April 2027, unused pension pots will become taxable on death for the first time. Burnham has previously floated plans to raise inheritance tax by an extra 10% to pay for social care reform. The nil-rate band has been frozen at £325,000 since 2009, and the Office for Budget Responsibility forecasts inheritance tax receipts will jump 67% over five years, from £9.1 billion to £14.5 billion.

What changes to inheritance tax are coming in April 2027

From April 2027, any pension money left in a pot when someone dies will count as part of their taxable estate for the first time. Currently, direct contribution pensions and death benefits escape inheritance tax. This change, introduced by former chancellor Rachel Reeves, will push more middle-class families into the inheritance tax net. The nil-rate band, where no tax is owed, stays frozen at £325,000 until April 2031. When leaving a home to descendants, the threshold rises to £500,000.

Burnham’s 10% tax rise proposal for social care

Burnham has previously proposed slapping an extra 10% on inheritance tax to fund a universal social care system in England. He first pitched this idea in 2009 as health secretary under Gordon Brown. As prime minister, he has vowed to spend political capital on social care reform. Downing Street says Burnham will address social care next week as part of efforts to tackle issues “ignored for too long”. The government has ruled out raising national insurance, income tax, or VAT.

How families can reduce their inheritance tax bills

Families can use the £3,000 annual gifting allowance to pass money to children tax-free, according to BBC Radio 4’s Moneybox programme. People can also use surplus income rules to transfer money without tax, though records must be kept. Gifts made more than seven years before death count as potentially exempt transfers and fall outside the estate. Research from financial advisors The Private Office found that 8 out of 10 middle-aged and older clients believe parents should pass wealth down before they die. Ian Dyall, head of estate planning at Evelyn Partners, warns that gifting carries risks: recipients may spend money in ways donors disapprove of, or donors may later regret their generosity if they run short of funds.

The scale of inheritance tax creep

Inheritance tax was designed to hit the wealthy, but the frozen nil-rate band means middle-class estates now bear most of the burden. The Office for Budget Responsibility forecasts total inheritance tax receipts will rise 67% over the next five years, from £9.1 billion this year to £14.5 billion. This rise happens even without Burnham’s proposed 10% increase. The threshold has been frozen for more than 20 years, dragging more families into the net each year as property and pension values climb. Reform UK has pledged to fight what it calls Burnham’s “universal death tax”.

What Burnham’s wider agenda means for households

Beyond inheritance tax, Burnham’s government has promised to freeze bus fares, ease electricity bills, and support pubs. He is also considering scrapping council tax and stamp duty, according to reports. The new prime minister is sticking to Labour’s 2024 manifesto promises and maintaining non-negotiable fiscal rules. He has ruled out an early election. Wes Streeting, the new defence secretary, has hinted at an overhaul of the National Care Service. Liberal Democrat leader Sir Ed Davey has called for cross-party consensus on social care reform.

Final Thoughts

Burnham’s inheritance tax plans will hit middle-class savers hard. With pensions now taxable from April 2027 and the nil-rate band frozen, families should act now to use gifting allowances and plan their estates. The 10% rise proposal remains a threat.

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The content shared by Meyka AI PTY LTD is solely for research and informational purposes.  Meyka is not a financial advisory service, and the information provided should not be considered investment or trading advice.