Inheritance Tax hotspots after 2027 pension changes. Is this you?

Kensington & Chelsea tops the list as the UK’s most expensive inheritance tax hotspot, with an estimated £343,924 due on the average property in this area, rising to an estimated £405,211 including pensions. With property prices continuing to drive estate values above tax-free thresholds, homeowners in the London boroughs dominate the rankings. Still, high-value areas outside the capital are also pushing many families into six-figure tax bills.

New analysis reveals the regional impact of bringing pensions into inheritance tax calculations

UK inheritance tax receipts reached £8.25 billion in 2024/25, with projections exceeding £9 billion by 2026/27. This surge is driven by frozen tax-free thresholds (£325,000 until 2030/31) and rising asset and property values. Geography plays a key role, as families in southern England are far more likely to face IHT than those in northern or coastal regions, even with similar lifestyles.

By analysing land registry data for average property values* across 372 local authorities in the UK and combining this with predicted pension pot values based on median salaries in these areas, The Private Office has identified the areas of the UK where more people will face the highest estimated inheritance tax liabilities.

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The locations predicted to be hit by IHT when pensions are no longer exempt 

From 6 April 2027, most unused pension funds and death benefits will be included in an individual’s estate for inheritance tax purposes, meaning they are no longer exempt. If the total estate, including pensions, exceeds the £325,000 threshold (or up to £500,000 including a main residence if left to direct descendants), amounts above this limit will be liable for 40% IHT.

Historically, pensions sat outside IHT calculations, so this proposed change could significantly reshape estate planning and impact people very differently depending on their location. New analysis combining local property values with typical pension pots based on median earnings highlights which parts of the UK are most exposed once pensions are included.

Research shows that 152 local authorities, previously below IHT thresholds, could fall into scope due to pensions no longer being exempt. This brings a total of 288 local authorities where average property prices and pension pots could see high levels of inheritance tax payments due. 

London and the South East remain most exposed

The highest potential inheritance tax bills remain concentrated in prime London boroughs and most affluent southern areas. Kensington and Chelsea could see average estate values exceed £1.3 million, with estimated IHT liabilities above £400,000 once pensions are included. Camden, Richmond upon Thames, Elmbridge, and Hammersmith & Fulham all show projected tax bills comfortably above £200,000. Wider commuter-belt locations such as Guildford, St Albans, Windsor & Maidenhead, and Wokingham also remain firmly within taxable territory.

For those in these regions, including pensions in the estate calculation may materially increase eventual tax exposure, reinforcing the importance of proactive planning.

Local authorities	Average property value (Nov 2025)	Estimated Iht due (without pension)	Median earnings	Estimated Pension Pot based on earnings	Combined Property + Pension value	Estimated Iht due (with pension)
Kensington and Chelsea	£1,184,811	£343,924.40	£45,600	£153,216.00	£1,338,027.00	£405,210.80
Camden	£800,930	£190,372.00	£53,577	£180,018.72	£980,948.72	£262,379.49
Elmbridge	£769,277	£177,710.80	£41,309	£138,798.24	£908,075.24	£233,230.10
Hammersmith and Fulham	£738,593	£165,437.20	£50,435	£169,461.60	£908,054.60	£233,221.84
Richmond upon Thames	£767,961	£177,184.40	£41,037	£137,884.32	£905,845.32	£232,338.13
City of London	£662,392	£134,956.80	£68,663	£230,707.68	£893,099.68	£227,239.87
Islington	£685,840	£144,336.00	£53,185	£178,701.60	£864,541.60	£215,816.64
Wandsworth	£688,570	£145,428.00	£43,035	£144,597.60	£833,167.60	£203,267.04
Hackney	£625,292	£120,116.80	£48,724	£163,712.64	£789,004.64	£185,601.86
Southwark	£596,674	£108,669.60	£50,000	£168,000.00	£764,674.00	£175,869.60

Note: These calculations do not take into account the Residence Nil Rate Band (RNRB) which is an extra £175,000 per person if a main residence is left to direct descendants. This is because not everyone is eligible for this additional allowance.

Mid-priced regions: where pensions could tip estates into inheritance tax

Mid-priced regions across the West Midlands, East Midlands, South West, East of England, and South Wales may experience the most meaningful shift from the 2027 reform. Average property values in these areas have historically fallen just below IHT thresholds, leaving estates untaxed. Once moderate pension savings are added, combined estate values can exceed the tax-free allowance, creating a modest but material liability.

Counties such as Warwickshire, Worcestershire, Staffordshire, Leicestershire, Derbyshire, Gloucestershire, Somerset, Norfolk, Suffolk, and parts of South Wales could face estimated IHT bills between £10,000 and £60,000. While far lower than in prime London, this represents many families’ first exposure to inheritance tax, highlighting the growing importance of location-aware estate planning.
 

Local authorities	Average Property value (Nov 2025)	Estimated Iht due (without pension)	Median earnings	Estimated Pension Pot based on earnings	Combined Property + Pension value	Estimated Iht due (with pension)
Stevenage	£315,429	Out of Threshold	£46,006	£154,580.16	£470,009.16	£58,003.66
Tewkesbury	£321,844	Out of Threshold	£41,639	£139,907.04	£461,751.04	£54,700.42
Thurrock	£322,776	Out of Threshold	£40,623	£136,493.28	£459,269.28	£53,707.71
Mid Suffolk	£324,084	Out of Threshold	£39,404	£132,397.44	£456,481.44	£52,592.58
Braintree	£324,322	Out of Threshold	£37,704	£126,685.44	£451,007.44	£50,402.98
Rutland	£318,174	Out of Threshold	£38,186	£128,304.96	£446,478.96	£48,591.58
Ribble Valley	£279,634	Out of Threshold	£49,351	£165,819.36	£445,453.36	£48,181.34
Warwickshire	£308,333	Out of Threshold	£40,536	£136,200.96	£445,453.36	£48,181.34
City of Edinburgh	£296,878	Out of Threshold	£43,715	£146,882.40	£443,760.40	£47,504.16
Gloucestershire	£315,907	Out of Threshold	£37,598	£126,329.28	£442,236.28	£46,894.51

 

Note: These calculations do not take into account the Residence Nil Rate Band (RNRB) which is an extra £175,000 per person if a main residence is left to direct descendants. This is because not everyone is eligible for this additional allowance.

This shift is significant not because of the scale of tax involved, but because it represents the first entry into the inheritance tax system for many families. Even relatively modest tax liabilities can reduce the value of intergenerational transfers, create liquidity pressures for beneficiaries, or force the sale of assets that were expected to remain within the family. As pensions move inside estate calculations, understanding true exposure and aligning retirement, gifting and estate-planning decisions accordingly becomes increasingly important. Early, location-aware planning will therefore play a key role in helping households in mid-priced regions use available allowances efficiently and protect long-term family outcomes.

Northern and Coastal Regions largely remain below the threshold

When taking pensions into account. Many northern, Scottish, Welsh, and coastal areas continue to sit below inheritance tax thresholds, even when estimated pension wealth is factored in. Locations such as Burnley, Hartlepool, Blackpool, County Durham, Inverclyde, and Merthyr Tydfil illustrate this trend, showing that estates in these regions are less likely to face immediate IHT liability. However, despite the lower current exposure, factors such as growing property values, increasing estate complexity, and potential future policy changes mean that careful planning remains important across the UK.

Inheritance tax is increasingly becoming a property tax by default. Many people don’t consider themselves wealthy, yet long-term house price growth – particularly in London and the South East – means their estates can face substantial tax bills. Without proper planning, beneficiaries may be forced to sell assets simply to settle the liability. Early advice and structured estate planning can significantly reduce the eventual tax burden.

Pensions have long sat outside inheritance tax calculations, so bringing them into scope has a major regional impact. In high-property-value areas, the effect is dramatic, but even in more affordable regions, families who previously expected no inheritance tax may now face a bill. Planning early will be crucial.

Marriage, Tax thresholds and changing demographics

Currently, married couples or civil partners can combine their inheritance tax allowances, meaning they benefit from higher thresholds. For instance, the individual nil-rate band is £325,000, plus there is the residence nil rate band of £175,000 (RNRB) if you are passing your main residence onto direct descendants such as children or grandchildren. But if you are married, you can pass your allowances to a surviving spouse to gift on their death, IHT free, which could mean gifting up to £1 million, as long as the overall estate is less than £2 million.

However, declining marriage rates and an increase in couples choosing to remain unmarried could leave more families exposed. Unmarried partners cannot combine allowances, so each person is subject to the thresholds individually. This means that even if they are leaving their estate to their long-term partner, IHT will be due on anything above £325,000. As a result, even households with moderate property and pension wealth may now fall into the 40% IHT bracket if they are not legally married.

In other words, while marriage can still provide a buffer against inheritance tax, the trend toward fewer legal unions means more couples could be caught by the 2027 reforms than in previous generations.

Why planning matters more than ever

For people in London, the Home Counties, and even mid-priced regions, inheritance tax is no longer an issue reserved for the ultra-wealthy. Long-term homeowners, particularly those who have benefited from significant property appreciation or built moderate pension savings, may now find their estates subject to substantial tax bills. The 2027 change to include pensions in estate calculations has the potential to push households that previously expected no liability into the inheritance tax net. While this may sound scary, according to HMRC, only 1 in 20 estates in the UK pays inheritance tax. There is normally no tax to be paid if:

• The value of your estate is below the £325,000 threshold known as the nil rate band
• You leave everything above the threshold to your spouse or civil partner, or
• You leave everything above the threshold to an exempt beneficiary, such as a charity or a community amateur sports club, or
• If you give away your main residence to your direct descendants, your threshold can increase to £500,000.

If you are at risk of falling into the threshold, effective planning strategies are now crucial and can include: 

• Lifetime gifting strategies: Regularly transferring assets during your lifetime, within allowance limits, can reduce the size of your estate and minimise future tax exposure. These can include gifts to children, grandchildren, or charities.
• Trust structures: Establishing trusts can help manage how and when beneficiaries receive assets while potentially providing relief from inheritance tax. Trusts can also protect assets in complex family situations or blended families.
• Pension planning: Reviewing how pension wealth fits into your broader estate plan is vital. Strategies may involve carefully timing withdrawals, considering joint spousal planning, and understanding the implications of death benefits.
• Business Relief-qualifying investments: For business owners, structuring investments to qualify for Business Relief can reduce IHT liability on certain shares and assets.
• Reviewing ownership structures between spouses: Ensuring that assets are owned in the most tax-efficient way between spouses can maximise allowances and reduce the overall estate exposure.

In short, the new rules mean that inheritance tax planning is no longer optional but a necessary part of financial management, even for households that previously believed they were unaffected. Acting early allows families to make informed, strategic choices that safeguard their estate and support the smooth transfer of wealth to future generations.

If you would like to discuss your personal financial situation, why not get in touch for a free initial conversation to see how we can help.

* Figures are based on average property prices (November 2025) by local authority. 

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. 

The value of your investments can go down as well as up, so you could get back less than you invested.

The Financial Conduct Authority (FCA) does not regulate cash flow planning, estate planning, tax or trust advice.