Inheritance Tax Hotspots Revealed: 152 New Areas Could Be Dragged Into IHT Under 2027 Pension Changes

Kensington & Chelsea tops UK rankings with potential £405,000 average tax bill once pensions are included

New analysis from The Private Office (TPO) reveals that bringing pensions into inheritance tax (IHT) calculations from April 2027 could significantly expand the number of people in the UK facing a tax bill, with 152 local authorities newly falling into scope.

The research shows that Kensington and Chelsea is the UK's most expensive inheritance tax hotspot. The average property in the borough would currently generate an estimated £343,924 IHT liability. Once pensions are included, this rises to approximately £405,211, with total average estate values exceeding £1.3 million.

Across the UK, inheritance tax receipts have already reached £8.25 billion in 2024/25, with projections exceeding £9 billion by 2026/27, driven by frozen thresholds and rising property values. The nil-rate band remains fixed at £325,000 until 2030/31.

152 Areas Newly Exposed

From 6 April 2027, most unused pension funds and death benefits will be included within an individual's estate for inheritance tax purposes. Historically, pensions sat outside IHT calculations. Under the proposed reform, there will be more estates exceeding £325,000 or up to £500,000 where the main residence is left to direct descendants that will face a 40% charge on the excess.

By combining average property prices across 372 local authorities with estimated pension pot values based on median earnings, The Private Office has identified 152 areas that were previously below the IHT threshold but could become taxable once pensions are included.

This brings the total number of local authorities with potential inheritance tax exposure to 288.

London and the South East Face Six-Figure Bills

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.

Midlands and South West Families Face First-Ever Bills

The reform's most meaningful shift may occur in mid-priced regions across the Midlands, South West and East of England.

Areas such as Stevenage, Tewkesbury, Warwickshire and Gloucestershire currently sit just below IHT thresholds based on property values alone. However, once moderate pension savings are included, average estates could face tax bills between £10,000 and £60,000.

While far lower than in prime London, this represents many households' first entry into the inheritance tax system.

By contrast, northern and coastal areas such as Burnley, Hartlepool and Blackpool remain largely below the threshold even when pensions are factored in, highlighting a widening regional divide.

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.

Marriage Gap Could Increase Exposure

Currently, married couples and civil partners can combine allowances, potentially passing on up to £1 million free of inheritance tax, including the Residence Nil Rate Band, as long as the overall estate is less than £2 million. Unmarried couples cannot transfer unused allowances, meaning each individual is assessed separately against the £325,000 threshold.

With marriage rates declining, more long-term couples may find themselves exposed to inheritance tax despite having moderate property and pension wealth.

"Inheritance Tax Is Increasingly Becoming a Property Tax"

Pippa Vick - Financial Adviser at The Private Office (TPO), said:

"Inheritance tax is increasingly becoming a property tax by default. Many families 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."