Pensions to be covered by inheritance tax, says Reeves – Irvine Times

Chancellor Rachel Reeves has said she will close the “loophole” around legacy pensions by bringing them under the Inheritance Tax (IHT) regime from April 2027.

Pensions are currently exempt from IHT and are not included as part of someone’s estate when they die.

Critics say the policy has led to people using pensions as a tax planning tool to transfer wealth, rather than the original goal of funding retirement.

Ms Reeves said the reform, combined with changes to tax relief for inherited farm and business property, would raise a total of £2bn.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said the policy “has long been seen as low-hanging fruit for a cash-strapped government”.

She said many more people would be “dragged into paying inheritance tax” as pensions count as part of their estate.

Ms Morrissey added that the “excitement of people” will rethink the way they want to treat their finances after retirement, with more looking to give more money to loved ones while they are still alive.

Russell Miles of wealth management firm Charles Stanley said the policy could mean that previously passive money “will now be spent, circulating a significant amount of ‘dead’ capital in the wider economy”.

However, Ms Reeves said inheritance tax payment thresholds would remain at their current levels until April 2030.

Inheritance tax is charged at 40% and applies to the estate, belongings and money of someone who dies above the £325,000 threshold.

Reports suggested Labor would make changes to the way inherited assets are taxed, leading to speculation the basic rate, or threshold, could rise.

The freeze means more than 90% of properties will be released in the coming years.

The chancellor said: “I understand the strong desire to pass on savings to children and grandchildren.

“So I’m taking a balanced approach in my pack today.”

Separately, Ms Reeves confirmed Labor would maintain the so-called triple lock on pensions.

The policy means that the State Pension increases each year by either 2.5%, in line with inflation, or by earnings growth – whichever is higher.

This means government spending on the state pension is expected to rise by more than £31 billion by 2029-30, Ms Reeves said.