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‘We’ve scrimped and saved our whole lives – now we’re being victimised by ruinous tax bills’

‘Furious’ Britons react to Rachel Reeves blowing up tax plans for a generation

Since 2015, savvy savers have been using their pensions to safeguard their wealth for future generations.
But now Chancellor Rachel Reeves has blown up the tax plans for a generation.
A decade ago, then-chancellor George Osborne abolished the “pensions death tax”, which meant money left unspent inside a pension account would not be caught by inheritance tax on death. Instead, it was taxed at the income tax rate of whoever inherited it when they withdrew the cash.
It opened up a golden opportunity to pass money down the generations, potentially indefinitely.
Now that has all changed and many people, like Dennis Canty, are furious.
“The ordinary person has been hit again,” says Mr Canty, 63, from High Wycombe.
“We had been investing in our pension to get around inheritance tax. To be honest, if we had the funds we’d move the money abroad, but we don’t, that is not an option for us.
“We’re looking at gifting to our kids sooner than we were going to. We just want to provide our children with a solid foundation for their future, which seems very unstable at the moment.”
Inheritance tax is infamously Britain’s most hated tax, even though relatively few estates have historically ended up paying it. It is the principle of “double taxation” that angers people, even those who know they will never personally be affected.
However, the latest changes mean increasing numbers will end up with a tax bill – government figures suggest some 10,000 more families will be stung as a result of Ms Reeves’ changes, and 38,500 will end up paying more. Nevertheless, people are concerned they will be directly affected.
Wealthier pensioners’ tax planning strategies have been turned on their heads as a result.
Alex Cummings, of wealth manager Succession Wealth, says pensioners typically use other assets to fund retirement spending, with pensions being used to pass on wealth. “I can see trust-based whole-of-life and gifting strategies becoming a bigger focus going forward,” he says.
Former pensions minister, Sir Steve Webb, says that the decision to include pension pots in estates could also lead to delays for grieving families.
“The details of the proposed process for including pensions in inheritance tax, set out yesterday in a government consultation, suggest that in cases where pensions form part of the estate, the whole process will become much more convoluted,” he warns.
“I was worried that Labour might bring pensions into inheritance tax,” says Sally Woodford, 59, a psychologist from St Albans. “It does sound like you’re being taxed more than once on the same money.”
She adds: “I paid inheritance tax on my father’s property – I ended up paying over £45,000 with everything combined. The bill would have been much higher if we hadn’t taken advantage of gifting.
“I think, having seen the benefit of that last time, we would start making regular gifts now. We do that at the moment. My father set up a trust fund for his grandchildren when they were younger, and we continue to do so. They use it for university accommodation, and one day they might use it for a house deposit.”
Ms Woodford adds the decision would hit “many people”.
“A lot will have scrimped and saved and worked very hard to put money into a pension. Now the value of that pension pot is somewhat depleted as a result – I am surprised.”
Currently, only 6pc of estates are liable for inheritance tax, but Ian Dyall, head of estate planning at wealth management firm Evelyn Partners, says it “can’t be long before this is 10pc”.
Mr Dyall suggests the changes will push more retirees to spend more of their pensions during retirement.
Evelyn Long, also from St Albans, feels it is unfair for the Government to levy inheritance taxes when she worked hard to provide for her family and only became a property owner in her 70s.
“I feel so bitter about it,” says Mrs Long, 89.
“I paid my way, bringing up three children, paying social rent in London before moving to Hertfordshire.
“My husband and I scrimped and saved, so I thought I would be able to leave something for my boys, but we’re not being treated fairly. Why should we be taxed on what we leave behind if we have already paid tax?
“I have never overstepped or lived beyond my means, so why are we being victimised?”

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