Published On: Fri, Mar 17th, 2023

Labour’s mask slips – plan for massive pension and inheritance tax raid if it takes power | Personal Finance | Finance

Labour was always known as the high tax party, but the Conservatives have been turning the screw, too. Our tax burden is now at a 70-year high.

Hunt has frozen income tax and inheritance tax thresholds until 2028, and will slash capital gains tax and dividends tax thresholds from next month (and again next year).

On Wednesday, Hunt finally saw sense and scrapped the complex and punitive pensions lifetime allowance, which slapped a brutal 55 percent tax charge on anybody who had the temerity to save too much in a pension.

Hunt did this to encourage older workers to go back to their jobs, especially NHS doctors who had quit to avoid seeing their pension savings savaged.

I celebrated his decision on Wednesday, because the lifetime allowance causes a lot more trouble than it’s worth, robbing both savers and the country.

Stupidly, I tempted fate by writing: After Hunt’s Spring Budget today, I shouldn’t need to mention it ever again. Except as an example of what a bad tax looks like.

Now it looks like I won’t stop writing about the pensions lifetime allowance because shortly after Hunt sat down, Shadow Chancellor Rachel Reeves announced she would reinstate this stupid tax if Labour wins the next election.

Really? Help.

Last year, Labour was calling for the lifetime allowance to be terminated, now that Hunt has pulled the trigger they suddenly want it back.

Reeves portrayed it as a £1billion tax break for the rich, saying it was “the wrong priority, at the wrong time, for the wrong people”.

Her words are worrying in all sorts of ways. 

I fully accept the case for taxation. The state needs money to fund the NHS, schools, the military, roads, and all the rest of it. readers are particularly keen on the state pension triple lock. That also costs money and taxing people is the only way to fund it.

I also accept that the better off should pay more. But if Rachel Reeves is willing to reinstate a tax as bad as the pensions lifetime allowance to score a few party political points, then I dread to think what else she’ll do under pressure from party activists.

If Reeves thinks the rich are getting too many pension tax breaks then she should cut the pension annual allowance or reduce tax relief on contributions from higher earners.

That may be harsh but at least it’s rational.

The lifetime allowance is a rotten tax and deserved to binned. The problem isn’t that it targets the rich, but that it does so in such a clumsy way that makes pension planning almost impossible.

As pensions expert Andrew Tully at Canada Life, rightly says: “You simply can’t play political ping-pong with the pensions system, as people need to plan for the long term and that demands confidence in the system.”

That confidence has been destroyed, and not just by Reeves.

READ MORE: Hunt takes swipe at Labour for ‘changing mind’ on pensions tax break

Politicians have been playing politics with our pension savings for decades.

It began in 1997, when Chancellor Gordon Brown launched his notorious pensions stealth tax raid that has sucked more than £200billion out of the nation’s workplace scheme so far.

Millions of British workers enjoyed a top-notch final salary pension schemes before Brown made his money grab. Almost no company offers them today.

Conservative chancellors have been just as bad, repeatedly fiddling with the pensions lifetime and annual allowances, confusing and deterring savers.

Pensions should offer a solid pot of money for our final years but politicians of all stripes treat them either as a juicy cash cow. Either that or a parlour game – typically we get a new Pensions Minister every nine months.

Now we know that if Labour does win power, the nightmare will intensify. Its “bash the rich” approach will apply across the tax system, with inheritances right on the front line. 

It’s time to go all out with your financial planning today. Use your pensions, inheritance tax, CGT and Isa tax breaks to the max while you still can.

Hunt is after your money today. Tomorrow it may be Labour’s turn. Make sure you’re ready for it.

Start by reading our new online guide to cutting inheritance tax bills.

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