Rachel Reeves could hit Brits with more inheritance tax (Image: getty)
Chancellor may rake in far more than the Labour Government initially estimated, a pensions consultancy firm believes.
After the controversial October Budget, grieving families are facing a 40% tax from April 2027.
The Government has estimated that the changes will raise £640m in the first year, £1.34bn in 2028-29, and £1.46bn in 2029-30.
But pensions consultancy LCP believes, by the 2030s, this change will see well over £3bn raked in each year.
Over the next 20 years, this could see as much as £40bn raised.
The Government could rake in £40bn (Image: Getty)
This is because pension transfers activity has increased since the 2010s, but then rapidly dropped after 2018 when tougher restrictions were imposed.
Typically, only about 50% of a defined benefit scheme can be passed down to a spouse. As a result, a number of savers transferred their pensions to ensure their loved ones would inherit their funds.
But unspent funds could be vulnerable to ‘s inheritance tax rules.
Tim Camfield, senior consultant at LCP, said: “Applying inheritance tax to pension balances could prove to be a real gold mine for the Government for many years to come.
“The surge in defined benefit pension transfer activity which we witnessed in the late 2010s will dramatically increase the number of people whose estate includes a significant defined contribution pension balance.
“Some may react to the tax changes by drawing down on their pension assets faster, but that will still generate significant tax revenue, as such withdrawals will be subject to income tax.
“Either way, as the defined benefit transfer generation gets older, the Government will start to see a multi-billion pound revenue stream from the income tax or inheritance tax on their pension pots.”
In recent years, governments have raked in more and more via inheritance tax receipts.
In the period between April and December 2024, inheritance tax receipts brought in £6.3bn for the Government, up by £600m when compared to the same period of 2023.
An HM Treasury spokesman said: “We do not recognise these figures. Government costings are based on actual inheritance tax data and are certified by the independent Office for Budget Responsibility who forecast over a five-year period.
“We continue to incentivise pensions savings for their intended purpose – of funding retirement instead of them being openly used as a vehicle to transfer wealth – and most estates will continue to pay no inheritance tax after these changes.”