Pensioners are rushing to rewrite their wills amid panic over Rachel Reeves‘ inheritance tax grab.
Law firms say they have been receiving enquiries about new wills since the Chancellor’s death tax announcement in the Budget on October 30.
Ms Reeves told the Commons in her first financial statement that pensions passed on when somebody dies will be taxed similarly to other inherited assets in the future.
The Chancellor announced she would close a “loophole” around inherited pensions by bringing them under the inheritance tax (IHT) regime from April 2027. Pensions are currently exempt from IHT and not included as part of someone’s estate when they die.
James Ward from Kingsley Napley said clients worried about the tax on pensions have been making enquiries, with some seeking to rewrite their expression of wish form to detail different plans for inheriting their pensions just in case they die after the rule change.
Mr Ward told the Telegraph people have been requesting that until April 2027 the pensions are left to their children because no IHT will be chargeable.
He added: “However, they have been drafting in a change in April 2027 so that after that date it will go to their spouse and therefore pass free of inheritance tax.”
Russell Kaminski from JMW told the same publication clients are more likely than ever to consider using flexible will structures which can adapt to changes.
Critics have said Ms Reeves’ policy has led to people using pensions as a tax planning vehicle to transfer wealth rather than their original purpose to fund retirement.
Ms Reeves said the reform, combined with tweaks to tax relief around inherited agricultural and business property, would raise £2billion in total.
She told the Commons that thresholds for paying IHT would remain at their current levels until April 2030. Inheritance tax is charged at 40% and applies to the property, possessions and money of someone who has died above the threshold of £325,000.
Ahead of the Budget, reports had suggested the Labour Government would make changes to how inherited assets are taxed, leading to speculation the main rate or threshold could rise. The freeze means more than 90% of estates will be exempt over the coming years.
Russell Miles, of wealth management firm Charles Stanley, has said the policy could mean previously passive money would “now be spent, circulating a considerable amount of ‘dead’ capital in the broader economy”.
Helen Morrissey, Head of Retirement Analysis at Hargreaves Lansdown, said many more people will be “dragged into paying inheritance tax” with pensions counted as part of their estate.
Ms Morrissey added a “flurry of people” will revisit how they want to treat their finances in retirement, with more looking to gift more money to loved ones while they are still alive.