UK households could be in for a harsh blow as Labour considers introducing a “death duty” from October amidst the ongoing cost-of-living crisis.
In a bid to address a £22 billion deficit left by the Conservative Party, inheritance tax is now seemingly on the chopping block.
Tom McPhail, a specialist at The Lang Cat financial consultancy, has voiced concerns that a death tax raid on pensions is a looming “real risk” with Labour at the helm.
Studies indicate that families inheriting a pension pot worth around £100,000 which is approximately the average amount saved by those aged between 55 and 64 could face a staggering £65,000 in taxes should inheritance tax be applied.
McPhail further highlights the potential upheaval such a move would cause, particularly among the more affluent pensioners. He commented: “The tax treatment of pension death benefits is very generous at the moment. There’s a reasonable possibility [Labour applying IHT to pensions] will happen.”
He continued to detail the repercussions for those planning their legacies, explaining: “At the moment people are using pension funds to make plans for their dependents.
“But if IHT and the avoidance of it is a concern, then people will have to restructure their retirement plans. Investors will be faced with a decision as to whether to try to preempt any move by Labour.
“If it looks like it’s coming, we might see people pulling out money from pension funds.”
Tom Selby, from brokerage firm AJ Bell, has voiced concerns that politicians would be wary of introducing a policy easily branded as a “death tax”.
He remarked: “However, it is true that changes made by former chancellor George Osborne in April 2015 mean pensions are extremely tax efficient on death and can in some circumstances be passed on completely tax-free.”, reports Birmingham Live.
“It is entirely possible, but not inevitable, that a future government will view this as overly generous and look to raise cash by increasing the amount of tax applied to pensions on death. Were this to happen, the Government would need to consider exactly how to deal with people who have taken decisions about contributing to a pension or transferring a pension based on the tax rules today.”
