Splashing the cash: how wealthy retirees are avoiding ‘inheritance tax raid'

The Guardian

22-03-2025

Financial companies are reporting a 'huge' increase in well-off older people withdrawing sizeable sums from their pensions to splash out on family holidays and give to their children.
This wave of spending and gifting has been triggered by the chancellor Rachel Reeves's decision to launch what some have called an 'inheritance tax raid' on unspent pension money – thereby lobbing a grenade into many older people's financial planning, say critics.
Many well-off older people would have been planning to leave unspent pension savings to their children or grandchildren but the shake-up announced in last October's budget, which is due to take effect from April 2027, means this money could be liable for inheritance tax (IHT).
As a result, large numbers of people are taking action now to avoid being landed with a bill that, for some, could run into six figures.
'Many of my clients have opted to adjust their financial plans to make the most of their money now and ensure no more than is necessary ends up in the hands of the taxman,' says Ian Cook, a chartered financial planner at the investment firm Quilter Cheviot.
Daniel Hough at the financial planner RBC Brewin Dolphin says he and his colleagues have seen a 'tremendous increase' in the number of withdrawals from pensions and other products such as Isas for the purpose of spending the money or gifting it.
For example, more people with grandchildren are splashing out on multigenerational family holidays. Hough says one of his older client recently decided to withdraw a chunk of pension money and spend about £55,000 on treating the family – seven adults and four children in all – to an 'unforgettable' three-week holiday to Florida next year.
Meanwhile, some clients are using this as an opportunity to 'go five-star rather than four-star' with their trips or upgrade to business class flights.
Asked about older people aiming to spend their pension cash, Philip Dragoumis, the director and owner at Thera Wealth Management, gives the example of a 'wealthy widow' in her 60s with a daughter in her 20s 'who is planning to take lots more expensive trips abroad now with her daughter than before'.
He adds that trying to make his client 'spend more money has been my mission anyway this past year … A looming 40% tax on her pension when she dies is now the motivation she needs.'
Anick Sharma, a financial planner at Videre Financial Planning, says he has seen lots of examples of older people shifting their focus to prioritise spending after October's announcement. 'One individual took his entire family (including grandchildren) to an amazing villa in Thailand for a month. Having caught up with him after, the takeaway was that you couldn't put a price on those memories,' says Sharma.
Likewise, Cook says several of his clients have 'bitten the bullet' and opted to pay to take their families on holiday. One has booked a trip to France for them and their family, as well as a cruise, he adds. 'Others are gifting their family members money to book their own holidays.'
Cook says some clients are opting to give their children money towards a first home. One had loaned their child some money for a deposit but, because ofthe budget announcement, has decided to give this cash as a 'potentially exempt transfer' instead, and plans to do the same with their other child, too.
Another has opted to use some of their pension tax-free cash to give a lump sum to their children to help them with home improvements.
Meanwhile, Gary Smith​​​​, a senior client partner at Evelyn Partners, was recently introduced to a widower in his early 80s who has a £900,000 Sipp (self-invested personal pension) that he wants to leave to his two sons. The man is worried about the IHT payable on his death after April 2027, so he wants 'to reduce the pension as quickly as possible' and is going to immediately start giving chunks of cash to each son. 'That's not something I've recommended he does – he has chosen to do that,' Smith says.
Hough says the increase in withdrawals 'has pushed up our workload', and that there are 'widespread delays' for people looking to take money out of their pensions because providers have been 'inundated' with requests. He had a case where it took two months for the client to receive their cash.
With all those holidays being booked, it is no wonder travel firms such as Kuoni and Thomas Cook are reporting an increase in demand for long-haul breaks. The over-50s specialist Saga Holidays told Guardian Money it has seen a 91% increase on last year in long-haul escorted tour holiday bookings.
Some have claimed Reeves's move on pensions and IHT 'is destined to backfire', and creates a huge incentive to spend rather than save. However, Dragoumis says: 'If you think about it, it was a smart move from the government, as all this money will be taxed and then spent in the economy now rather than much later.' In theory we could hear more about all this when Reeves stands up in the Commons on Wednesday to announce her spring statement.
There is also an argument that older people who can afford to should be spending their pension cash rather than hoarding it with the aim of passing it on to their heirs.
The big danger is some people will burn through their pension money too quickly, leaving little or nothing for their final years.
Legal & General issued research last month that shows, based on current spending rates, 'many retirees could be set to empty their pension pot by their late 70s, leaving nine years of unfunded retirement on average'.