Mr Webb says<\/a> the real inheritance tax sting lies not in the fields of rural Britain \u2014 but in the untouched pension pots of middle England.<\/p>\n“While the inheritance tax changes for farmers have grabbed most of the media attention, it is the IHT changes relating to pensions which will affect far more people and raise far more money.” he said.<\/p>\n
And it\u2019s already happening. Across the country, pensioners are pulling money out of their retirement pots earlier than planned \u2014 not to pass on to their children, but to spend.<\/p>\n
\u201cThe newspapers are full of people who have reacted by taking money out of their pensions much earlier than planned,\u201d Webb noted. \u201cThey\u2019re spending it on multi-generational family holidays \u2014 or even the famous sports car.\u201d<\/p>\n
From April 2027, unspent defined contribution (DC) pensions will be swept into estates for inheritance tax purposes, dragging potentially thousands more families over the \u00a3325,000 threshold and slapping them with a 40% tax bill.<\/p>\n
The Treasury estimates this will raise \u00a31.46 billion annually by 2029 \u2014 but Webb is sceptical. \u201cI think the government has substantially under-estimated the revenue they are likely to generate through this policy,\u201d he warned. \u201cJust at a time when we are constantly reading of the chancellor\u2019s limited fiscal \u2018headroom\u2019, I have no doubt that income tax and VAT revenues will surprise on the upside.\u201d<\/p>\n
That\u2019s because every time a pensioner takes money out of their pension wrapper to spend \u2014 whether it\u2019s on a trip to the Maldives or a brand-new Aston Martin \u2014 it triggers an income tax charge. And that spending often brings with it a VAT boost too.<\/p>\n
\u201cIf this starts to happen at scale, then the Treasury could be in for a windfall,\u201d Webb told Money Marketing \u201cIf you were the chancellor, you would be rubbing your hands with glee.\u201d<\/p>\n
Indeed, for those over 75 \u2014 where pension wealth passed to anyone other than a spouse becomes taxable \u2014 the pressure to spend is now acute. And spend they are. Travel agents are reporting a boom in luxury bookings by retirees. Car dealerships are welcoming silver-haired first-time Ferrari buyers. And financial advisers say they\u2019re flooded with pensioners eager to turn retirement savings into experiences.<\/p>\n
Webb, who served as pensions minister from 2010 to 2015, says the irony is rich. \u201cGiven that the desire to pass on a cash inheritance was one of the reasons why some people chose to transfer out of their DB scheme, it would be an irony if they now find that those transferred balances are subject to IHT at 40%, plus any income tax payable by recipients.\u201d<\/p>\n
That \u201cgold rush\u201d from DB to DC pensions, he said, could end up being a poisoned chalice. \u201cOver that period, many tens of billions of pounds were transferred out of DB pensions \u2014 where no IHT would fall due \u2014 to DC, where the full unspent balance could now be taxed.\u201d<\/p>\n
For those who transferred in their late 50s or early 60s during the post-2015 boom, the clock is ticking. \u201cAs this group gradually dies \u2014 and their widows or widowers also die \u2014 the impact of the pensions IHT change could grow significantly.\u201d<\/p>\n
Some retirees are responding with generosity \u2014 paying for school fees, family holidays, or simply covering the weekly lunch bill for grandchildren. Others are taking a more hedonistic route, swapping restraint for rail journeys across Africa and wine-tasting in New Zealand.<\/p>\n
Webb doesn\u2019t condemn them \u2014 he sees it as entirely rational behaviour. \u201cSome people may feel that by acting in this way they can thwart the tax office by making sure that no IHT is payable on this money.\u201d<\/p>\n
But make no mistake, he says, it\u2019s the Treasury that ultimately wins. \u201cInstead of money sitting in pension pots and eventually passing on free of IHT on death in years to come, the Treasury is now getting a flow of tax revenues right away.\u201d<\/p>\n
So, while the Budget headlines were filled with farmers and furrowed brows, Webb believes it\u2019s the pension tax tweak that will fill government coffers.<\/p>\n
\u201cIt will be another IHT change in the same Budget which will ultimately raise far more money for the government,\u201d he said.<\/p>\n
And in the process, it may just spark a silver spending spree unlike anything we\u2019ve seen before.<\/p>\n","protected":false},"excerpt":{"rendered":"Former Pensions Minister Steve Webb says the Government Is set for a multi-billion pound windfalls as pensioners spend…\n","protected":false},"author":2,"featured_media":5870,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3093],"tags":[51,3121,3122,3124,3123,2074,2499,16,15],"class_list":{"0":"post-5869","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-inheritance-tax","10":"tag-inheritance-tax-2025","11":"tag-inheritance-tax-latest","12":"tag-inheritance-tax-news","13":"tag-pension","14":"tag-personal-finance","15":"tag-uk","16":"tag-united-kingdom"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@uk\/114308607395521222","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/5869","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=5869"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/5869\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/5870"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=5869"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=5869"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=5869"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}