Labour has come under fire over inheritance tax proposals that would treat some inherited assets more favourably than others
Bereaved families could pay inheritance tax on pension money they never receive under rules taking effect next April.
From April 2027, unused pension funds will be included in a person's estate when their inheritance tax bill is calculated.
However, families will not be able to reclaim inheritance tax if the pension falls in value after the person dies.
This differs from the treatment of inherited property and shares. If these assets are sold for less than their value at the date of death, families may be able to have the inheritance tax bill recalculated using the lower sale price.
Critics have accused Labour of creating a "two-tier" system that treats pensions less favourably than other inherited assets, even though they will all be subject to inheritance tax.
Inheritance tax is normally charged at 40 per cent on the part of an estate above the available tax-free allowances.
The standard allowance is £325,000 per person, although this can potentially rise to £500,000 when a qualifying home is passed to direct descendants.
Married couples and civil partners may be able to transfer unused allowances to the surviving partner.
The relief available on other inherited assets can save families thousands of pounds.
For example, if a home is valued at £500,000 when its owner dies and only the standard £325,000 allowance applies, £175,000 would be taxable. At the 40 per cent inheritance tax rate, this would produce a £70,000 bill.
If the property is then sold for £475,000, the estate may be able to use the lower sale price when recalculating the tax. The taxable amount would fall to £150,000, reducing the bill by £10,000.
A similar calculation can apply following the death of a surviving spouse or civil partner.
If a qualifying couple can use the full combined £1million allowance and their home is valued at £1.175million, inheritance tax would be charged on £175,000.
Should the property later sell for £1.15million, using the lower value could again reduce the family's inheritance tax bill by £10,000.
Pension funds that lose value after death, however, will offer no such recourse under the incoming rules.
Rachel Vahey of AJ Bell said: "HMRC's justification is hard to square. It says these reliefs should not apply because the pension saver does not own the pension assets, yet those same assets are being pulled into the saver's estate for IHT purposes."
Adam Cole of Quilter pointed to the concept of "notional pension property," a construct devised by HMRC to push the policy through at speed.
"Two complex tax ideas are being forced together in a couple of years. It's too complex a system, and they've tried to import some of the IHT regime on to pensions," he said.
Because the deceased is not classified as having owned the pension assets before death, families are denied the reliefs available on other inherited property.
Olly Cheng of Rathbones characterised the broader shift in blunt terms. "This is a wealth tax under another name. If you want to tax wealth, you go after property and pensions. Pensions are being stripped back to strictly provide a retirement income, nothing more."
Ms Vahey warned that the consequences for bereaved families extended beyond simply paying more.
"Under the plans, inheritance could be subject to a two-tier tax system, estates could face higher tax bills, extra late payment interest and less flexibility at exactly the point families are already dealing with bereavement," she said.
With Office for Budget Responsibility forecasts projecting IHT receipts climbing towards £16billion by the end of the decade, the pressure on estates caught by the expanding net shows little sign of easing.
Property loss relief is generally available when qualifying inherited land or property is sold within four years of the death, not only within 12 months. The 12-month period generally applies to qualifying shares and securities.
