The government is showing no signs of changing its plans to levy inheritance tax (IHT) on pensions.
Sometimes what creates the most noise in the wake of a Budget is not what will hurt the taxpaying population most in the future. A perfect example from last October’s Budget is the set of measures aimed at increasing IHT receipts.
The changes to agricultural relief and business relief, which have brought tractors out in force around the UK, is projected to add £520 million a year to the Exchequer’s coffers by 2029/30, according to the Office for Budget Responsibility (OBR). There is no breakdown between the farming and non-farming aspects. However, the Treasury’s Budget Day press release on the changes showed that in 2021/22, the tax cost of business relief was almost twice as much as that of agricultural relief.
The proposed introduction of IHT on pension benefits has not as yet produced any organised blockades of central London nor caused disruption of ministerial speeches. However, the reform is projected to yield £1,460 million extra in IHT receipts in 2029/30. For comparison, the total amount raised by IHT in 2025/26 is forecast by the OBR to be £8,700 million.
The government ran a 12-week technical consultation on the new pension/IHT framework which ended on 22 January. There were over 500 responses according to media reports, an abnormally high number for a tax consultation. Unusually, the chief executive officers of several major investment platforms that administer pensions wrote a joint letter to the Chancellor, setting out their concerns. They said, “The complexity of the proposed approach, namely bringing all pensions into estates for IHT, will lead to substantial delays paying money to beneficiaries on death and cause distress for bereaved families.”
The Treasury was reported to be surprised at the volume of responses, but there is no evidence that it is having second thoughts. In mid-March, the new Pensions Minister, Torsten Bell, told the Pensions and Lifetime Savings Association conference that “…we are going ahead with making sure pensions are used for [their intended purpose].”
The final details of the new regime are still awaited and there might be further consultation. For now, if you have any doubts about the wisdom of making further pension contributions, do take advice.
For more information on pension planning, reviewing your existing pension provisions and ensuring you’re on track to reach your retirement income goals, contact us today. We offer a free General Financial Review for all potential clients, to discuss your circumstances, objectives and how we can help. For more information or to book your complimentary appointment, please call us on 01872 301116.
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