The UK is awaiting the autumn Budget on October 28, where detailed tax changes are expected to be revealed by the Labour government. However, concerns are already being raised about potential increases in taxes on capital gains and personal wealth, which are anticipated to disproportionately affect higher earners and private sector employees.
Pension Tax Changes
Significant changes to pension taxation are set to take effect, drawing criticism from financial experts and pension campaigners. Starting April 6, new rules will bring inherited pension funds into the inheritance tax (IHT) net. Previously, the value of an unused defined contribution pension fund fell outside the IHT net. If the plan holder died before age 75, beneficiaries could access the funds tax-free. For those dying after 75, withdrawals incurred income tax at the beneficiary's marginal rate, but not IHT.
The new regulations will, in some cases, subject inherited pension funds to both IHT and income tax. According to reports, in extreme scenarios, up to 91% of an inherited pension fund could be lost to tax. This change is described as a "spiteful, vindictive tax attack" that could disrupt long-term financial planning and penalize individuals who have saved diligently for retirement and to pass wealth to their loved ones.
Critics argue that this constitutes retrospective taxation and forces individuals to deplete their pension savings before death to avoid the tax implications for their beneficiaries. The move is seen by some as an "assault on strivers" who have worked to secure financial futures for themselves and their families.
Salary Sacrifice Changes
Further changes impacting pensions are scheduled for 2029. Curbs on the use of salary sacrifice arrangements by employers, a mechanism used to reduce the cost of providing workplace pensions, will be implemented. These new rules are expected to increase business costs for employers through higher national insurance contributions. Employees may also see a reduction in their wages if employers pass on some of these costs.
The Institute for Fiscal Studies has indicated that higher earners and private sector workers are likely to bear the brunt of these changes. This mirrors past actions, such as a £5 billion annual tax raid on company pensions in 1997 under the Labour government, which contributed to the decline of defined benefit pension schemes in the private sector.
Broader Tax Concerns
Beyond pensions, there is anticipation of higher taxes on capital gains and personal wealth in the upcoming Budget. Financial experts have expressed concern and outrage over these potential measures, warning of significant impacts on individuals who have saved and invested prudently. The general sentiment among critics is that these policies reflect "envy politics" and a class-based approach rather than encouragement for financial prudence and hard work.