UK households who have nest eggs of £100,000 face losing up to £70,500

Inherited pensions could see a 'double tax hit' of up to 70.5 per cent. Labour Party Chancellor Rachel Reeves plans to make pensions liable for inheritance tax like other assets such as property, savings and investments starting from April 2027.

But if a saver is aged over 75 when they die, their beneficiaries are still going to have to pay their normal income tax rate of 20 per cent, 40 per cent or 45 per cent on pension withdrawals too, warn finance experts. The net effect of these combined taxes could mean that the government takes as much as £70,500 out of each £100,000 left in a pension pot to their children.

Craig Rickman, pensions expert at Interactive Investor, says: "Reeves’s move to scrap the inheritance tax exemption on unspent pension savings is bold, and will be a blow to savers who have beefed up their retirement pots to harness the estate-planning perks.

READ MORE UK set to be hammered by 5cm of snow with two parts of England 'bearing brunt'

"This will reduce the allure of cascading pension pots down generations." Julie Hammerton, a partner at Hymans Robertson, said: "These changes will have a big bearing on how people approach passing on wealth to their loved ones. With pensions coming into the inheritance tax regime, it’s more likely that they will be accessed for an income in retirement, rather than a means through which wealth can be passed on to future generations.

"From a financial planning perspective, the order in which people access their long term savings will likely change. This sequencing is something that those in the fortunate position to have savings will need to get their heads around. The positive is that pensions remain a very effective means through which to save for the future. We shouldn’t lose sight of that."

Jon Greer, head of retirement policy at Quilter, says: "The removal of the inheritance tax exemption will result in a double tax hit for beneficiaries, although the normal exemption for spouses and civil partners will continue to apply.

"For families inheriting larger pension pots, this will lead to significant tax liabilities, depending on the recipient’s income tax bracket."