Inheritance tax change causes 'urgent crisis' with people raiding pensions early

An inheritance tax raid under the government in the wake of Labour Party Chancellor Rachel Reeves' Budget is set to cause an "urgent crisis" an expert has warned. Rachel Reeves today announced that pensions will be included within the value of estates for inheritance tax (IHT) purposes from April 2027.

Simon Merchant, CEO of Flagstone, the UK's largest savings platform warned: "There's an urgent crisis emerging here where many people are raiding their pensions early and don't have a plan for what to do with their cash."

Mike Ambery, retirement savings director at Standard Life echoed this sentiment and said: "In time we're likely to see more pensions, accessed earlier to prevent them from becoming part of people's IHT bill at a later date."

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Ambery continued: "It's perhaps no surprise that the Government has decided to bring pensions into scope for inheritance tax as their exemption was little known to the public. At present it makes more sense to access Isas and other forms of saving before touching pensions, but this will change."

Hannah English of Hymans Robertson said: "With pensions assets now liable for inheritance tax from 2027 the implications for some DC members may be that savers start spending more of their pension pots now.

"This further reinforces this Government's clear intent that tax incentives for pensions are there to encourage individuals to receive a pension. The policy aim was never to encourage intergenerational wealth accumulation for the few.

"The announcement today will reinforce people to save into their pension and live independently while, and for as long as, they are alive." Stevie Heafford, Tax Partner said “Inheritance Tax has long been one of Britain’s most unpopular taxes. As it stands, the nil rate band, which is the amount you can pass onto your loved ones without paying any Inheritance Tax, is £325,000.

“The decision by the government to freeze this figure until 2030, rather than increase it in line with inflation, means that many people will continue to find themselves caught in the Inheritance Tax trap for the first time.

“The Chancellor should have increased it in line with inflation. Sadly, Inheritance Tax is no longer in the realm of the ultra-wealthy but instead it impacts normal working people.”