Rishi Sunak has been urged to launch a £1bn raid on inheritances as wealthy families increasingly use pensions to avoid the tax.
The Institute for Fiscal Studies said pensions risk becoming “a vehicle for the wealthiest households” to slash their inheritance tax bill as they use other investments to provide income in retirement.
The think tank said a rich couple can escape tax bills of more than £600,000 through the pensions loophole, urging for it to be “swiftly ended”.
Any money remaining in a pension at death at any age is not subject to inheritance tax, creating a huge incentive to use other investments to fund retirement and leaving pension pots for families. There is income tax on money received from inherited pension pots but only if they died at or after 75.
The thing is, we’re repeatedly told that the dead don’t actually pay inheritance tax. So, it’s fair game. Also, there can’t be any distortions from taxing inheritances because there are no incentives.
Except, as we can see, people go to extraordinary lengths to avoid inheritance tax. So, there are distortions, people do feel the pain.
Exactly because people do these things we know that inheritance tax does have an effect upon behaviour.