Estates which are passed down to the beneficiaries of those who have passed away already exceeding the £325,000 tax-free threshold will face a levy
State pensioners face being taxed at 87% under ‘substantial’ HMRC shake-up
State pensioners face a 87 per cent tax bill under Labour Party Chancellor Rachel Reeves’s reforms. Pension savings for some families could be hammered with tax bills charged at 87 per cent under a shake-up.
Labour is making pension pots liable for inheritance tax (IHT) in April 2027. Estates which are passed down to the beneficiaries of those who have passed away already exceeding the £325,000 tax-free threshold will face a 40 per cent levy on remaining pension assets.
For pensioners dying after age 75, beneficiaries must pay income tax on withdrawals at their personal rates, which can reach 45 per cent for higher earners. This income tax applies alongside the 40 per cent inheritance levy, creating a double taxation effect that can consume 67 per cent of the pension value.
READ MORE There’s one group of drivers you have to feel so sorry for in new UK pay-per-mile car tax
Jonathan Watts-Lay, the director at WEALTH at work, warned: “The introduction of IHT on pensions could result in substantial tax charges for some.
“Those most likely to be affected are individuals with larger pension pots, especially if those savings were intended to be passed on to family.”
“However, people will need to review their individual circumstances,” he said. Mr Watts-Lay explained: “From an IHT perspective, it could now be better to spend pension savings first and preserve other assets for later on.
“This is the opposite approach to what has previously been the case.”
“It’s always worth speaking to your employer to find out what support they provide to help staff improve their finances,” he said.
Ms Reeves said: “Under this Government, we have seen five interest rate cuts that have helped bring down costs for families and businesses and today’s forecast shows that inflation is due to fall faster than previously predicted.
“At the Budget later this month I will take the fair choices that are necessary to build the strong foundations for our economy so we can continue to cut waiting lists, cut the national debt and cut the cost of living.”