Fearful Brits have withdrawn a staggering £70.1bn from pension pots over the past year due to inheritance tax (IHT) raid concerns. Withdrawals increased 35.9% between 2023/24 to 2024/25, according to a report from the FCA, amid rumours about 25% tax-free lump sum changes. In the six months to September 2024, 99,243 accounts saw money taken out, which is up from 84,132 in the previous six months.
Former pensions minister Steve Webb, now a partner at consultancy LCP, said the retirement income data exposed the “fears about reductions in limits on tax free cash” and the impact “uncertainty” around pensions has on the market. “These figures show graphically how uncertainty about pensions and tax can move the market,” he told Citywire New Model Adviser.
He added: “In the six months before the October 2024 Budget there was a surge in larger pension pots being accessed, mainly because of fears about reductions in limits on tax free cash.
“But after the Budget, where there was no change to tax free cash, withdrawals of large pots accelerated. This is likely to reflect the change in pensions and IHT, with people starting to explore ways of moving money out of the IHT net ahead of the 2027 changes.”
Mr Webb said it is “deeply disappointing” that the financial behaviour of Brits is being driven by “uncertainty around public policy”.
At the same time, over-55’s ripped a staggering £636m from their homes over the past year as they borrowed against their properties to avoid Labour’s tax raid.
New borrowers are taking out an average of £126,422 from their properties, which is possible with a lifetime mortgage, allowing Brits to borrow against their homes in exchange for a tax-free sum of money. Homeowners are inquiring into gifting money as a way to avoid the steep inheritance tax.
Andy Shaw, of broker SPF Private Clients, said his firm had received a higher number of people interested in this, with the funds often used to pay for a house deposit or school fees.
“We expect this to continue as we move nearer to April 2027, when pensions are due to fall into the inheritance tax calculation,” he told The Telegraph.
“Most commonly, the funds released are gifted by the borrowers to their children or grandchildren, and will usually become a potentially exempt transfer, and thus fall outside of their estate after seven years.”
In the UK, Brits can give up to £3,000 a year to friends and families without the risk of inheritance tax. Any figure higher than this will only be automatically exempt after seven years.