Changes to Inheritance Tax rules could see people born in these years hit with a much bigger tax bill from Wednesday onwards.
As part of Labour’s plans to plug a £22bn black hole in the public’s finances, Inheritance Tax is one key area financial experts think Chancellor Rachel Reeves is going to target to try to raise money and a rule tweak around Inheritance Tax age limits on how much you can inherit tax free appears to be very much on the table ahead of this Wednesday’s Budget.
Under current rules, Inheritance Tax is not paid on people’s pensions as the value of the pension pot is not considered to be included in the value of someone’s estate.
And right now, the beneficiaries of an estate’s defined contribution pension schemes pay no Inheritance Tax if the owner of the pension dies before the age of 75, so for this year, this would be born after 1949, 1950, 1951 and upwards.
But this week, Labour could change this age limit rule in order to raise more Inheritance Tax revenue from passed-down pensions money.
Helen Morrisey, head of retirement analysis at Hargreaves Lansdown, said: “Changing the tax treatment of pensions on death could prove a tempting target for the Government. The current system sees pensions passed on tax free if a death occurs under the age of 75.
“Deaths over age 75 see beneficiaries pay income tax on what they receive. In most cases pensions do not attract inheritance tax.
“It’s a move that sets pensions apart from other savings vehicles and has prompted people to spend down other assets and leave their pensions to pass on to loved ones.”
She said that in future, Inheritance Tax could be applied to passed on pensions or there could be a specific charge for inherited pensions separately.
There are also suggestions that Capital Gains Tax and Employer National Insurance could be looked at in the upcoming Budget, which is set to be announced in full on Wednesday, October 30.
