STEP said the pension changes could also lead to “larger charitable gifts than intended”. For example, if the value of a person’s taxable estate went up to £200,000 from £100,000 after pensions were included, then a 10pc donation would double in value from £10,000 to £20,000 – potentially eating into the family’s inheritance.
Mr Shields said: “The split of assets after tax could change significantly overnight due to the pension changes in 2027.”
He added families should check their wills and pension nominations after the rules come into effect.
However, leaving pension money to charity may be more tax-efficient for some individuals, Mr Shields said. “If the person is over 75, then their pension is potentially going to have a very high marginal tax rate, so that makes charitable gifting from the pension more attractive.”
As well as a potential inheritance tax bill, beneficiaries may have to pay income tax on the pension if the deceased was 75 or over.
STEP also warned the pension changes could cause families “significant financial hardship” if the inheritance tax calculation delayed the payment of pensions.
In addition, the trade body said the Treasury should provide tax relief in case the pension assets fell in value after they were sold, meaning the beneficiaries paid tax on a value they never received.
Emily Deane, of STEP, said: “The proposed pension changes should not proceed without a thorough assessment of how they will work in practice and their wider impact on the tax system.
“Unless tax changes are joined up, policies could cost more to administer than they raise in revenue, with families and businesses forced to pay for specialist advice just to understand their liabilities.”
The Treasury was contacted for comment.
