Warning issued to pension savers ahead of latest Rachel Reeves tax raid | Personal Finance | Finance
A warning has been issued to pension savers ahead of the latest government tax raid. A financial advisory firm has warned that pensioners could face a cash shortfall when inheritance tax (IHT) rules change.
Chancellor Rachel Reeves has confirmed the major change which will bring most unused pernsion funds and death benefits into the value of the deceased person’s estate from April 6, 2027. While money held in pensions has usually been outside the impact of IHT, it could be hit by a 40% tax charge. According to Bowmore Financial Planning, this could expose families to liquidity problems where pensions hold commercial property.
As reported by GB News, date from the Financial Conduct Authority (FCA) shows 54,387 pension plans currently include commercial property holdings. As these assets can be hard to sell quickly, families could encounter problems once pensions are subject to IHT.
As families are put under increased pressure to generate cash, they may be forced to accept lower prices for properties. This will reduce the value of their pension assets.
FCA analysis also shows that 1,367 Self-Invested Personal Pension (SIPP) plans include property overseas. These assets can take even longer to sell due to legal complications.
Beneficiaries are put under more pressure by interest charges. While HM Revenue and Customs (HMRC) can agree payment plans where IHT cannot be paid within six months, interest continues to build on unpaid tax during this period.
Mark Incledon, chief executive officer at Bowmore Financial Planning, said: “Commercial property can be very slow to sell but in the past that has been less of a problem as there was no IHT bill to pay on property held in a pension.”
He added: “Introducing IHT on pensions fundamentally changes the risk profile of holding commercial property inside a SIPP.”
Mr Incledon explained that some families could be left with large tax bills. He said: “These assets were never designed to be accessed quickly, and with the changes to IHT rules families could suddenly find themselves trying to raise a six-figure tax bill without the liquidity to do so.”
