Unless I get married, my estate will have to pay a tax bill of £214,000 This is one of the dangers of the inheritance tax pension reforms

Cohabiting couples may be negatively impacted by the chancellor's plans to impose inheritance tax on unused pension wealth

If financial planner Scott Gallacher doesn't marry his long-term partner after April 2027, he may leave his loved ones with a 214,000 inheritance tax bill. Love, not taxes, should be the primary reason for marriage.

The government's plans to include pensions in the inheritance tax system are a startling reality that could result in cohabiting couples receiving a surprise bill from HMRC in the event that one partner passes away.

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

This implies that when someone passes away, more estates may leave their families with an inheritance tax bill.

Several people may be impacted by the changes, including Gallacher, 51, director and financial planner at Leicester-based advisory firm Rowley Turton, particularly if he dies after April 2027 before getting married.

Gallacher Scott.

Until he marries his partner, financial planner Scott Gallacher's pension puts him over the inheritance tax threshold.

The monetary price of changes to the inheritance tax.

In addition to being engaged for 27 years, Gallacher and his 59-year-old partner have been together for 29 years.

However, they never got married because they decided to save money for a house in the 1990s rather than get married. Life then got in the way as they raised their two boys and he built his business.

He currently has 10,000 in cash, a 700,000 pension, and 150,000 equity in the house he and his partner own.

Because he can use the 325,000 nil-rate band to cover his equity and savings, his estate would not be subject to inheritance tax under the current regulations. The pension would also remain unaltered, leaving 860,000 that he could pass on tax-free to his partner and two children.

Additionally, unless he specifically leaves money to his two boys instead of his partner, the 175,000 residential nil rate band is "lost."

However, after April 2027, the pension value will be included, resulting in a 214,000 inheritance tax bill. This leaves 646,000 in his estate for his loved ones to inherit.

This is due to the current tax system's preference for married couples, which allows you to transfer assets to your spouse tax-free.

But unmarried couples are exempt from this.

"I think there will be stories about cohabiting couples who didn't know about the changes and one of them died by April 2027," Gallacher said.

"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."

Although Gallacher is fortunate to be in a position where he is aware of the changes, other married and single people might not be aware that their pension wealth may soon force them to pay inheritance tax.

To help individuals determine whether they should follow advice to lower their inheritance tax bill, Rowley Turton has introduced an inheritance tax calculator on its website that illustrates the financial impact of the pension changes.

Should you marry someone in order to lower your inheritance tax liability?

According to Gallacher, this has expedited his long-term plans to get married.

"The pension change will accelerate that need," he continued, adding that some communities may have only married religiously but are not considered married under UK law.

It is advantageous for wedding cake manufacturers and the wedding industry.

"Fortunately, I have a short-term solution for my personal liability, but regardless of your relationship status, financial advice may still be necessary because some people will still have higher bills even if they are married.