The Labour government’s new inheritance tax (IHT) plans have sparked a wave of will rewrites as savers scramble to protect their wealth.
With Chancellor Rachel Reeves proposing an IHT levy on pension pots, many individuals are redirecting their assets to charities and other tax-efficient structures.
(Read Time: Approx. 4 minutes)
Topics Discussed:
- Why Labour’s tax plans are triggering an increase in will redrafting.
- The legal and financial strategies savers are using to avoid Labour’s IHT raid.
Labour’s IHT Reforms: A Tax on Pensions?
Under previous tax rules, pensions were often outside the scope of IHT, making them a popular vehicle for wealth transfer.
However, Rachel Reeves’ Budget proposal to tax inherited pension pots has left savers facing a potential 40% IHT bill.
With millions of pension savers affected, tax experts have observed a significant rise in estate planning enquiries.
Case Study: How One Saver is Fighting Back
David Hague, 65, from Cumbria, was among the first to react to Labour’s tax proposals.
Rather than leave his wealth vulnerable to IHT, he rewrote his will to leave a large share to charity instead of his family.
Why Charitable Giving Reduces IHT
Under UK tax law:
- Charitable gifts are exempt from IHT.
- If 10% or more of an estate goes to charity, the IHT rate drops from 40% to 36%.
- Redirecting wealth to charities rather than the Treasury ensures funds support meaningful causes.
Mr Hague stated:
“I’m not prepared to accept double taxation on pensions to fund Labour’s ideological nonsense. I think a much better legacy is to leave it to charity.”
This move ensures more of his estate goes to his chosen causes rather than government coffers.
Other Legal Strategies to Avoid Labour’s IHT Grab
1. Gifting Assets During Lifetime
- The seven-year rule allows gifts to be exempt from IHT if the donor survives seven years.
- Transferring wealth early avoids last-minute tax pitfalls.
2. Setting Up Trusts
- Discretionary trusts protect assets from IHT while allowing control over distributions.
- Trusts ensure future generations benefit without excessive taxation.
3. Spousal and Family Transfers
- Assets passed to spouses and civil partners are exempt from IHT.
- Using spousal exemptions can delay IHT exposure until wealth is passed to children.
4. Business and Agricultural Property Relief
- If a person owns a business or farm, Business Property Relief (BPR) and Agricultural Property Relief (APR) can exempt assets from IHT.
- Passing assets through business structures can preserve family wealth.
Public Backlash Against Labour’s Tax Plans
Labour’s new IHT policy has triggered widespread frustration, particularly among middle-class savers who worked to build pension wealth for their families.
For many, this feels like a double tax: as pensions will be taxed on income, then taxed again on inheritance.
As a result:
- Legal firms have seen a sharp rise in estate planning consultations.
- More individuals are gifting wealth early to reduce future IHT burdens.
- Pension structures are being reconsidered to avoid Labour’s new tax approach.
Summary
With Labour’s new IHT plans looming, early estate planning is crucial.
Whether through charitable giving, trusts, or gifting, there are effective ways to protect your assets.
Speak to Help Me Legal Solicitors for expert estate planning to minimise tax exposure
Contact Help Me Legal today at 01772 282768, fill in our contact form here, or reach out via our 24 hour WhatsApp at +447816848188.