Labour's potential 'death duty' could hit UK households with £65,000 tax bills on pensions from October
Amid the escalating cost of living crisis, UK households might be at the receiving end of a "death duty" from October if Labour introduces it as part of its strategy to address a £22 billion shortfall attributed to the Conservative Party, with inheritance tax potentially in their sights.
In a worrying forecast, finance expert Tom McPhail warned that there's a "real risk" of Labour launching a tax raid on pensions as part of a death duty. According to analysis, families who inherit a pension pot worth £100,000 which is approximately the average amount saved by individuals aged 55 to 64 could be hit with a staggering £65,000 tax bill if inheritance tax is imposed.
Tom McPhail, representing financial analysts The Lang Cat, highlighted that such a move could massively disrupt the plans of affluent pensioners, commenting: "The tax treatment of pension death benefits is very generous at the moment. There's a reasonable possibility [Labour applying IHT to pensions] will happen."
McPhail added further concerns stating: "At the moment people are using pension funds to make plans for their dependents. But if IHT and the avoidance of it is a concern, then people will have to restructure their retirement plans. Investors will be faced with a decision as to whether to try to preempt any move by Labour. If it looks like it's coming, we might see people pulling out money from pension funds."
Tom Selby, from brokerage firm AJ Bell, highlighted the anxious stance politicians would likely take over a policy easily labeled as a "death tax". He observed: "However, it is true that changes made by former chancellor George Osborne in April 2015 mean pensions are extremely tax efficient on death and can in some circumstances be passed on completely tax-free.", reports Birmingham Live.
He also speculated on future policy adjustments, saying: "It is entirely possible, but not inevitable, that a future government will view this as overly generous and look to raise cash by increasing the amount of tax applied to pensions on death. Were this to happen, the Government would need to consider exactly how to deal with people who have taken decisions about contributing to a pension or transferring a pension based on the tax rules today."