Rachel Reeves unleashed a possible £34,000 tax raid on pensioners yesterday with the chancellor hammering families and businesses with a series of punishing measures.
The chancellor delivered the highest tax hike in history with an eye-watering £40 billion raid on the nation in a Budget dubbed by Rishi Sunak as of “broken promises”.
As part of the new measures, grieving families in the UK face losing £65,000 each year due to a change to Inheritance Tax rules.
Under current rules, pensions are exempt from Inheritance Tax and are not assessed as part of a person’s estate value when they die. But Reeves has committed to closing this “loophole” from April 2027 to bring them under the Inheritance Tax regime.
It means that pensions that are passed onto family members when somebody dies will be taxed similarly to other inherited assets in the future.
In the Budget, the Government said it was “removing the opportunity for individuals to use pensions as a vehicle for inheritance tax planning”.
Advisors are warning that the change means families will have to rethink their inheritance planning.
Clare Moffat, of Royal London, has found a potentially handy loophole that can help people dodge the tax raid through gifting.
She told The Telegraph: “You could be taking money out of drawdown and if you’re not spending it, you could be gifting. If you were taking £50,000 of drawdown a year, but only spending £30,000, you can set up a regular payment to someone from your income.
“So if you’ve got a child who’s working you could pay £10,000 a year into their pension, or you could pay into a grandchild’s Isa.
“This is unlimited, but it only works if it’s a regular payment and doesn’t give you a poorer standard of living.”
Martin Willis, of consultants Barnett Waddingham, said: “The question is now if people are above the pension age, do they start to take money out at their marginal rate of tax and put it into other forms of trust, or keep it where it is?”
However, Mr Willis warns that anyone thinking of making a change to their plan should get advice beforehand in order to avoid a costly “knee-jerk reaction”.
