‘My estate faces a £214,000 tax bill unless I get married’ - the perils of the inheritance tax pension reforms

Love rather than tax should be the main motivation for getting married but financial planner Scott Gallacher could end up leaving his loved ones with a £214,000 inheritance tax bill if he doesn't marry his long-term partner after April 2027.

That is the startling reality of the government’s plans to bring pensions into the inheritance tax net, which could leave cohabiting couples with a shock bill from HMRC if one partner dies.

Chancellor Rachel Reeves announced in her 2024 Autumn Budget that inheritance tax will be applied to pensions from April 2027.

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This means more estates could leave their families with an inheritance tax bill once someone dies.

Gallacher, 51, director and financial planner at Leicester-based advisory firm Rowley Turton is among many who could be hit by the changes, especially if passes away after April 2027 before getting married.

The financial cost of inheritance tax reforms

Gallacher has been with his 59-year old partner for 29 years and they have been engaged for 27.

But they never got around to getting married as they chose to save to buy a house in the 1990s instead of having a wedding and then life got in the way as he built his business and they raised their two boys.

He currently has a £700,000 pension, £150,000 equity in the home he owns with his partner and £10,000 in cash.

Under the current rules, his estate wouldn’t pay any inheritance tax as he can use the £325,000 nil-rate band covering his equity and savings, while the pension remains untouched - leaving £860,000 that can be passed on tax-free for his partner and two children.

The £175,000 residential nil rate band is also 'lost' unless he specifically leaves money to his two boys rather than his partner.

But, after April 2027 the pension value will be included, creating an inheritance tax bill of £214,000, leaving £646,000 in his estate to leave his loved ones.

This is because the tax system currently favours married couples, meaning you can pass on assets to your spouse tax-free.

But this doesn’t apply to unmarried couples.

Gallacher said: “I suspect come April 2027, there will be stories of cohabiting couples where one has died and they weren’t aware of the changes.

“Most people have houses and life cover so for the average person the inheritance tax allowances are pretty generous, but including pensions will flip some people from under to over the limit.”

While Gallacher is lucky to be in a position where he is aware of the changes, other people, both married and unmarried, may be unaware that their pension wealth could soon push them into paying inheritance tax.

Rowley Turton has launched an inheritance tax calculator on its website to highlight the financial difference the pension changes will make so that people can decide if they need to take advice to cut their inheritance tax bill.

Should you get married to reduce your inheritance tax bill?

Gallacher said he was always planning to get married and this has accelerated his plans.

He added: “Some communities may have only got married religiously but UK law does not regard them as married, so the pension change will accelerate that need.

“It’s a boon for the wedding industry and wedding cake manufacturers.

“Luckily I have a short term solution for my own personal liability, but there will be people who still face higher bills even if they are married, so financial advice may still be needed whatever relationship you are in.”