The first Labour Budget in 14 years is just over two weeks away. Taxpayers are concerned that Chancellor Rachel Reeves is poised to implement new taxes. Reeves has already made controversial decisions, such as cutting benefits for 10 million pensioners.
Now, she looks set to target pensions, capital gains, and inheritances in a bid to raise funds. There is considerable speculation about the potential changes Reeves might introduce, particularly in the pensions landscape. Here are the top three anticipated changes:
1.
Capping the tax-free pension lump sum: Currently, individuals can take 25% of their total pension pot tax-free from the age of 55. This tax-free cash is capped at £268,275. However, Reeves may reduce this cap to £100,000, affecting anyone with more than £400,000 in their pension pot.
2. Cutting the pensions annual allowance: The annual allowance for pension contributions is currently capped at £60,000, but this could be reduced. This move would particularly impact higher earners.
3.
Cutting pension benefits in Labour Budget
Taxing pensions on death: Under current rules, unused pension savings can be passed on free of the 40% inheritance tax (IHT).
However, taxing pensions on death could generate significant revenue, and experts believe it’s a likely target for Labour. As the Budget date approaches, it’s essential to remain vigilant and well-informed to navigate the possible changes effectively. Ensuring that financial plans are flexible will help mitigate any potential risks and make the most of current allowances and tax benefits.
Government officials have asked one of Britain’s top pension providers to assess the impact of reducing the tax-free limit to £100,000, a third of the current limit. The move is being considered following recommendations from two major think tanks, the Institute for Fiscal Studies (IFS) and the Fabian Society, who argue that the current cap favors the wealthy. Steven Cameron of the pension company Aegon said: “Many individuals will have planned their retirement finances on the assumption they could take 25 per cent of their full fund as a tax-free lump sum.
Being stopped from doing so would cause a major outcry.”
The Chancellor has reportedly backed down on plans to reduce the 40 per cent pension tax relief for higher earners over concerns it would unfairly impact public sector workers. She is also reconsidering her pledge to abolish non-domiciled status due to fears it may fail to raise significant revenue and is looking for other ways to fill a claimed £22 billion gap in public finances. With the autumn budget looming, more savers have been withdrawing their tax-free lump sum as soon as they hit retirement age.
Savers are acting out of fear of potential changes. Quilter, a wealth manager, warned clients in a letter to the Treasury that Budget fears could jeopardize their financial security. A Government spokesperson responded: “We do not comment on speculation around tax changes outside of fiscal events.”
April Isaacs is a news contributor for DevX.com She is long-term, self-proclaimed nerd. She loves all things tech and computers and still has her first Dreamcast system. It is lovingly named Joni, after Joni Mitchell.
