Tories plan pension raid to fund IHT overhaul
The Conservatives have announced plans to restrict pensions tax relief for higher earners to fund an increase to the inheritance tax (IHT) allowance.
Under the proposals, the Tories will increase the inheritance tax allowance from £325,000 to £500,000 per person in 2017, effectively giving married couples a total allowance of £1 million.
Prime Minister David Cameron said the overhaul would be funded by limiting tax relief on pension contributions in excess of £10,000 a year for workers earning more than £150,000.
Hargreaves Lansdown said the move would hit those savers who have enjoyed financial success at an early age because those who are earning this level in the latter end of their working lives will already have had the opportunity to amass a decent pension in previous decades.
Tom McPhail head of pensions research at Hargreaves Lansdown said the proposals would not only hinder pensions saving but also exacerbate the existing imbalances in the UK housing market.
"This policy announcement will undoubtedly be popular with the minority of home-owners who stand to benefit from it. Aside from this however, it is likely to distort both the housing market and the long-term savings market. It comes on the back of a series of fundamental changes to the pension system in recent years (auto-enrolment, pensions freedoms and state pension reform) without any behavioural analysis or assessment of the likely long-term consequences."
Adrian Walker, retirement planning manager at Old Mutual Wealth, agreed and said that ministers needed to allow the new rules to settle before making any further changes.
"Pensions tax relief is being used like an election piggy bank and there is a danger that the emerging goodwill towards pensions is stunted. People are paying attention to pensions like never before and a period of certainty and stability would go a long way to rebuilding the savings habit in the UK," he said.
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The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.