British households are being urged to take immediate action to stave off the threat of imminent expected Labour separate pension and inheritance tax raids in next month’s looming budget.
Experts fear Starmer and Reeves will hit the more affluent with tax raids (Image: Getty)
The new government’s potential tax raid on pensions could see the wealthiest pensioners lose out significantly, according to recent analysis.
Higher earner’s retirement pots could reduce by £83,000 over their working life, it is feared.
The current system enables tax relief on pension contributions at marginal rates, such as basic-rate taxpayers receiving 20 percent, higher-rate 40 percent, and the additional-rate 45 percent.
Chancellor Rachel Reeves is reportedly looking to bring in a flat 30 percent rate of pension tax relief in her upcoming Budget, reports GB News.
It is part of Labour’s tax review strategy, with Prime Minister Sir Keir Starmer hinting of “painful” measures ahead.
Wealth manager Quilter has revealed the potential impact of proposed changes through its analysis.
A higher-rate taxpayer could face a retirement pot shrink by £83,506 over 40 years under the flat 30 percent relief rate.
However, basic-rate taxpayers would benefit, with their retirement investments potentially rising by £27,807.
The figures show a higher-rate taxpayer’s pension would decline by more than 10 percent, from £794,984 to £711,477.
However, a basic-rate taxpayer would benefit by 10 percent, from £288,090 to £315,897.
The Institute for Fiscal Studies (IFS) has urged caution, advising the Chancellor against adopting this “superficially appealing policy”.
Ian Cook of Quilter Cheviot said it would “fundamentally alter” how tax relief is applied.
But, the changes could generate £15billion by capping relief at 20 percent, while a flat 30 percent rate would yield £2.7bn.
David Gibb, a chartered financial planner at Quilter Cheviot, said: “If they are doing something on pension tax it’s more likely to be on tax relief on contributions into pensions, I can’t see them doing anything on the lump sum.”
Families and even expats with any assets in the UK have also been warned how to mitigate the potential impact of an expected inheritance tax raid.
Nigel Green, founder of financial advisory firm Devere Group, fears the new financial announcements will likely include “significant hikes” in inheritance, capital gains, and pension taxes that could be “devastating” for some families.
He is warning people a month before the next Budget is delivered on October 31 by Chancellor Rachel Reeves, to give people time to act.
It is feared the new government will use tax hikes to plug the budget black hole they say was left by the Tories.
Labour vowed in its electioneering that it would not raise key taxes affecting “working people” such as income tax, national insurance, or VAT tax changes outside of fiscal events.”
Rachel Reeves has already come under fire over her winter fuel payment cuts (Image: Getty)
This commitment was repeated at its annual conference this week.
Mr Green fears this leaves taxes that affect more affluent people – or those with just a few assets – as sitting targets.
He said: “We’ve seen an overwhelming surge in enquiries from clients, both existing and new, seeking urgent advice on how to protect their wealth before Chancellor Rachel Reeves delivers what is expected to be a painful financial blow next month.
“But the truth is that these plans will unfairly punish families who have worked hard to build their estates. With soaring property values pulling more and more ordinary families into the IHT net, this isn’t a tax just for the ultra-rich anymore.”
For several years no inheritance tax has been due on estates of up to £325,000, but anything over that is hit by a 40 percent raid.
Increasing house value could see the number of people affected by the tax rising.
Mr Green: “Don’t wait until it’s too late. By acting now, families can take advantage of the current rules, ensuring they keep control over their wealth and avoid the damaging effects of Labour’s likely tax reforms.”
The Treasury will not comment on the speculation.
A spokesperson said: “We do not comment on speculation around tax changes outside of fiscal events.”
