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Hunt has just handed pension savers a nuclear weapon within the fight against inheritance tax | Personal Finance | Finance


His decision has unleashed an enormous controversy, that’s casting a shadow over a number of the higher measures announced in his Spring Budget.

Hunt has handed the Labour Party an open goal, by allowing them to say he has delivered an enormous tax break to the rich, while squeezing everybody else.

Labour loves accusing Tory chancellors of helping out their wealthy mates, so at first I scoffed Shadow Chancellor Rachel Reeves line of attack.

However the more I take a look at Hunt’s move, the more I see her point. Hunt has just given super-wealthy Britons an enormous opportunity to fight back against his own inheritance tax squeeze, by allowing them to pump a small fortune into pensions.

And I mean massive. Within the fight against the hated “death tax”, this can be a nuclear-sized game changer.

It is going to allow high earners to cover a whole lot of hundreds of kilos away from the taxman, they usually’d be daft to not make the most.

On death, pension savings are only concerning the only asset that might be passed to family members freed from inheritance tax (although they could pay income tax in the event you die from age 75).

Hunt’s decision to scrap the lifetime allowance has supercharged the advantages of saving in a pension, based on Dean Butler, managing director for customer at Standard Life.

“Families now have scope to pass on unlimited sums tax-efficiently”, he said, adding: “If pension beneficiaries leave the cash untouched, it could cascade down across multiple generations.”

The one thing standing of their way is that this sneaky tax rule. 

Was that what Hunt intended?

In the previous couple of days, my inbox has filled up with emails from pension corporations and wealth advisers, urging clients to make the most of this once-in-a-lifetime opportunity.

I’m in favour of scrapping the lifetime allowance, having written umpteen articles setting out what a foul tax it’s.

I groaned when Reeves said she would reinstate it, because the uncertainty will make pension planning much more complex and confusing.

Yet Hunt has made it easy for Labour’s class warriors by concurrently increasing the annual allowance, the quantity we will save in a pension annually, from £40,000 to £60,000.

Most bizarre people cannot afford to save lots of £40,000 right into a pension, let alone £60,000.

So why did he do it?

Wealthy people now have an enormous opportunity and will take it, based on Sean McCann, chartered financial planner at NFU Mutual. “From April, couples could shelter as much as £120,000 a 12 months from IHT, by contributing to a pension, and without fear of the pensions lifetime allowance.”

McCann calculates that if a person paid £60,000 a 12 months right into a pension and it grew at 4 percent annually after charges, their pot could possibly be price £812,298 after 10 years.

This might them save a staggering £324,919 of IHT.

A pair who did the identical would have pension of £1.62million and a staggering £649,838 potential IHT saving.

Again, is that this what Hunt intended?

READ MORE: Plan for huge pension and inheritance tax raid as Labour’s mask slips

The Office for Budget Responsibility still expects inheritance tax receipts to rise in the subsequent few years, but I do know what meaning in practice.

Many of the money will come from middle income Britons, who’re increasingly those who pay IHT for 2 reasons.

First, rising house prices are pushing more people past the £325,000 threshold. Second, they haven’t got clever advisers helping them avoid it.

The backlast against Hunt’s move will hit all of us. If pensions are seen as an enormous IHT tax dodge for the wealthy, it could tempt Reeves to do greater than restore the lifetime allowance.

She could make everybody’s pensions subject to IHT.

Plenty of individuals wish to see this occur. Last December, the Institute for Fiscal Studies published a paper arguing that the overly generous tax treatment of pension pots at death must be swiftly ended.

Because of Hunt, that day has just moved closer.

Families have been handed a tax planning nuclear weapon today, and will likely be clamouring to make use of it.

Unfortunately, Labour has been handed a possibility to go nuclear on our pensions, too.

If she does, we’ll know who accountable. Jeremy Hunt.

I bet he didn’t expect that.

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