HMRC warning over private pensions with more people 'being caught in net'

People with a pension pot risk being dragged into a new Labour Party government and HMRC tax raid. Pension savers risk being "caught in the net" of Rachhel Reeves's tax reforms, despite Steve Reed insisting only a few hundred farms will be impacted by changes to inheritance tax.

Mike Ambery, Retirement Savings Director at Standard Life, said: "As you don't need to use the full pension pot when buying an annuity, this approach would allow retirees to provide themselves with a guaranteed income to live on while lessening any IHT bill."

"Pension and inheritance tax changes in the Budget have put renewed focus on the need for people to make sure they are effectively using their pension assets throughout retirement," the Pensions Minister said. "The changes could mean more savers expect to be caught in the IHT net and will begin looking for ways to navigate this to reduce the value of the inheritable funds."

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Alastair Black, Abrdn's head of savings policy. compared the changes to IHT rules to the current status quo. Black shared: "Currently, most pensions are passed on after the age of 75, at which point those inheriting the pension need to pay income tax on the money they receive.

"Adding IHT on top of this could see the estate and the recipient paying tax twice between them on a proportion of the same pounds "It certainly adds new complexity to estate planning, and will increase demand for advisers’ help in developing more sophisticated strategies."

Chancellor Rachel Reeves said she would “close the loophole created by the previous government” and will bring pensions into the scope of IHT from April 2027. Experts have warned that this will have a large impact on estate planning, especially those with larger estates and pension pots.

Commentators have warned the end result of this change is that many more people will now be brought into scope for IHT.