Inheritance Tax is a levy which is charged on the value of an estate above a certain threshold – usually £325,000 – of a person who has passed away. The tax is just one of the key issues experts currently believe are set to be raised in Mr Sunak’s upcoming Budget and Spending Review on October 27, 2021. However, while discussions related to potential Inheritance Tax changes have frequently arisen, there are also concerns that pension changes could also be brought into the mix.
One expert has suggested it is “death taxes” at large which could be on the Chancellor’s agenda – with a focus on pension inheritance as well as Inheritance Tax.
Laura Suter, head of personal finance at AJ Bell, explained: “If the Chancellor wants to raise money from wealthier people, he could turn his attention to taxes paid on death.
“Pensions can currently be passed on tax-free on death if the person dies before age 75, and at your recipient’s marginal rate of income tax if you die after age 75.
“Applying a tax to inherited pensions would clearly raise much-needed cash for the Treasury, although how much would depend on whether a protection regime was introduced for existing funds or not.
READ MORE: Pension: Will you be able to afford a comfortable retirement?
Despite negative attitudes towards the levy, it can prove particularly lucrative for the Treasury, a potentially ideal target in a time of financial hardship.
Recent figures have illustrated how beneficial this tax is for the Treasury, as the Government collected some £2billion in IHT receipts for April to July 2021 – an increase of £0.5billion on the same period a year earlier.
It is for this reason, Ms Suter said, that the Chancellor may look at reviewing the tax in a way which could help the Government to raise more money.
She added: “Inheritance Tax is the other lever the Treasury could pull here.
A five-year freeze, however, is significant and will mean more people are dragged into the tax net over this time.
As a result, some may wish to speak to a financial adviser or review their own affairs to best plan out their future.
These experts can offer tailored advice to suit a person’s specific circumstances when it comes to tax.