Pension death tax will punish millions of savers, says advisory firm
Planned government changes to pension taxes must be dropped, according to City experts.
Advisory firm Blick Rothenberg has slammed the move as a “poorly conceived policy change [that] penalises prudent savers and their loved ones through double taxation.”
The pension reforms – announced in October’s Budget and set to kick in from April 2027 – would include undrawn pension funds within the remit of inheritance tax, effectively taxing pension funds a second time.
Currently, the funds left in a pension pot after someone dies are usually exempt from inheritance tax.
Under the government’s proposals, unused pension funds will be included within the value of an estate for inheritance tax purposes from April 2027. The Treasury expects the changes to bring in around £1.5bn a year by 2030.
A ‘double tax’
Tomm Adams, who heads up Blick Rothenberg’s pensions and benefits advisory service, said: “There will be a massive impact on unmarried elderly couples.”
“If someone dies and their partner needs full-time care, then the funds in their pension can help to pay for that care,” Adams added.
Effectively, if one partner were to die and the other was left in need of care later in life, money that otherwise would have been available to the partner would have already been taxed away.
There are also mounting concerns that the policy will cause a bureaucratic tangle of delays, especially for individuals with multiple pension pots or no will.
Adams said: “If the government is genuinely only looking to prevent the wealthy using pensions to pass on ‘excess’ personal wealth tax-free, then they should only levy inheritance tax on pension funds over a certain value – perhaps it could be linked to the lump sum and death benefit allowance which is currently just over £1m.”
‘Pension death tax’ raid
Earlier this year, Britain’s biggest wealth management firms mounted a coordinated attack on the tax raid.
In a letter to the Chancellor, the bosses of Hargreaves Lansdown, AJ Bell, Interactive Investor and Quilter, which collectively manage some £430bn for British savers, called on the government to u-turn on the plans announced at the Budget in October.
The four investment chiefs claimed Reeves’ plans would hurt lower-income savers by increasing complexity and “compound an already difficult situation” for bereaved families.
“Rather than pressing ahead with this flawed and potentially damaging approach, we urge the government to reconsider these proposals and work with the pensions industry to agree a simpler method of achieving the policy aim,” they wrote.