The Chancellor has older people in his sights in his desperation to find more money, writes Jonathan Walker
Chancellor John Healey (Image: Getty)
Chancellor John Healey is to launch a stealth increase in inheritance tax next year. It will eventually raise £1.46 billion for the Treasury – every year – at the expense of grieving families. of course, it comes on top of existing inheritance tax obligations. And personal finance experts warn that older people are already panicking at the thought of even more of their savings going to the Government instead of loved-ones.
The windfall for the Treasury will come from charging inheritance tax on unused pension pots. Many people save into a pension while they are working, often with contributions from an employer too, and use the money once they retire. But they may die before they spend it all. In fact, a lot of retirees plan their spending carefully, to ensure the cash does not run out while they are still alive.
In the past, unused pension pots could usually be passed on to a loved one without being liable for inheritance tax.
It might still be taxed in other ways. For example, in some cases a beneficiary who inherits a pension pot might be charged income tax when they withdraw money from it.
But Labour have now decided pension pots will be liable for inheritance tax too.
The new rule comes into force in April 2027. And the Treasury says it will raise £640 million, increasing to £1.46 billion a year by 2029-30.
That’s more money from the Government, taken directly from the beneficiaries of the deceased – such as children whose parents have died.
Former Chancellor Rachel Reeves announced the policy, and the current Chancellor, John Healey, is sticking with it.
Predictably, older people who know about the change are already worried, although there are probably many others who don’t even know about it.
A report by financial advisers Quilter found retirees are stepping up the amount they hand over in gifts, in an attempt to reduce the amount they leave in their wills, even though six in ten are worried about running out of money to fund themselves.
The average retiree now gives £2,272 a year to relatives and spends a further £2,250 on education costs for children and grandchildren. Together, this amounts to £4,522 a year.
This report shows that the planned inclusion of unused pension pots for inheritance tax has changed how people use their money. More than a quarter (29%) plan to spend more of their pension savings during their lifetime, 26% intend to gift more of their pension wealth, and 24% expect to access their pension earlier than originally planned.
Steven Levin, CEO of Quilter, said retirees are helping their families more, but added: “Many people are making these decisions against a backdrop of economic uncertainty and significant changes to the retirement landscape, leaving many concerned about their own financial future.”
It’s another example of Labour’s desperation to raise cash to pay for their spending plans, and willingness to use older people as a source of income.