Rachel Reeves delivered the Spring Statement on Wednesday (March 26) (Image: Wiktor Szymanowicz/Future Publishing via Getty Images)
Rachel Reeves' Spring Statement on Wednesday (March 26) is set to deliver a harsh reality check for many, as she unveiled a series of public spending cuts aimed at balancing the Labour government's books.
In line with Ms Reeves' pledge to fund day-to-day spending through tax receipts rather than additional borrowing, Ms Reeves has initiated measures to slash spending across Government. However, this could potentially put your pension at risk of falling into an "inheritance tax trap", according to a tax advisor.
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Mitch Young took to TikTok to dissect what the Chancellor of the Exchequer's announcement means for the public. "HMRC and the government are going to have increased powers to tackle tax evasion and avoidance, resulting in ￡1 billion of income coming into the treasury," he began.
While there are no significant changes to tax rates or previous budget announcements, Mitch highlighted that this will lead to increases in employers' National Insurance, and Business Relief for business owners and farmers will be limited.
He followed up with a concerning revelation: "Pensions are going to come into the inheritance tax trap. There's also been a number of policy documents published on the Gov.uk web site - these result in HMRC advance assurances for research and development tax credit claims."
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"There's also a commitment to introducing Making Tax Digital (a key part of the government's Tax Administration Strategy) for farmers and self-employed individuals earning more than ￡30,000 from April 2026," Mitch explained.
From April 2027, pensions will no longer avoid the clutches of inheritance tax, affecting those who pass away. This means that inheritance tax may have to be paid on your pension when you die.
Therefore, money left in a defined contribution (AKA money purchase) pension after your death will be pulled into the inheritance tax net from April 2027, Labour has warned. The changes mean that any 'unused' pension savings could be the subject of taxation as part of someone’s estate should they exceed the threshold.
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Nevertheless, financial experts at Royal London have stated: "Even with this change, inheritance tax isn't going to be an issue for most people. Everyone has an entitlement to a nil rate band of ￡325,000 of assets which they can leave to anyone free of inheritance tax."
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However, criticism on social media is palpable. One TikTok user expressed outrage, commenting: "Freezing thresholds is a large tax increase - pensions inheritance tax is unfair."
Another angrily asserted: "This is not governing, taking care of people is governing - taxation is persecuting people." A third user hit out: "They cant handle the workload now, let alone start investigating more. HMRC is not fit for purpose."
Meanwhile, a fourth railed against the party traditionally seen as a champion of the working class, venting: "Labour with their roots in working for the common man on the street now working for how to bury them as quickly as possible."