HMRC to snatch '64 per cent of people's pensions' after exemption scrapped

A warning has been issued to pension savers after it emerged an exemption that allowed elderly people to pass on a pension pot free of inheritance if the holder died before the age of 75 has been removed by the new Labour Party government.

It means HMRC could raid people's pensions and claim as much as two-thirds. Michael Summersgill, chief executive of investment site AJ Bell, has written to the ChancellorRachel Reeves to warn the Budget proposal was “arguably the most complex and costly way of raising tax from unused pensions on death”.

He added: “If the government presses ahead with the proposals as written, it will risk fundamentally undermining the UK pensions system.” Mr Summersgill argued there were much “simpler” ways for the Treasury to raise money via the retirement savings system.

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Mr Summersgill said the changes risked leaving higher-rate taxpayers paying, in effect, a rate of 64 per cent on an inherited pension. He told the Financial Times: “At what will be an emotionally challenging time for those close to the deceased . . . the process of distributing much-needed support will end up stalled in a much more complicated probate process.”

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “If the process takes longer than six months to pay the inheritance tax bill then HM Revenue & Customs will start to charge interest, which will add extra headaches for families at what is already an extremely difficult time.”

Jon Greer, head of retirement policy at Quilter, told the national newspaper: “At present, pensions offer significant tax benefits, and pulling the rug out from under those who have planned their futures based on the current framework feels retrospective and unfair without some form of transition.

“The government must strike a balance between simplification, fairness and operational feasibility.” A Treasury spokesperson said inherited pensions will be subject to “inheritance tax once and, if due, income tax once, as is the case with other savings”.

He added: “We continue to incentivise pensions savings for their intended purpose of funding retirement instead of them being openly used as a vehicle to transfer wealth.”