Wealthy retirees blow pensions on holidays to beat Labour tax grab
Are you using up more of your pension because of inheritance tax reforms? Get in touch: money@telegraph.co.uk.
Wealthy retirees are choosing to spend their pension on holidays rather than passing it on to their descendants to avoid Labour's inheritance tax grab, research has found.
Over half (56pc) of savers aged 45 and over with pension pots of over £300,000 now intend to spend more of their nest egg after Chancellor Rachel Reeves's October Budget, according to a survey by wealth management firm RBC Brewin Dolphin.
A further 17pc were unsure, while the remaining 27pc did not intend to change their spending plans.
When asked what they now planned to spend their pension pots on, three quarters of respondents said they intended to go on more holidays.
Two in five (40pc) said they planned to have more experiences with family members, and a similar share (39pc) said they would give more money to their family as gifts.
Unspent private pension wealth will be counted as part of an estate for inheritance tax purposes from April 2027 under changes announced by the Chancellor last year.
The move – which will lead to death duty revenue almost doubling under Labour – has led many wealthier citizens to change their inheritance strategies to avoid a huge tax bill for their heirs when they die.
Wealth managers have reported clients transferring large sums to their descendants, paying for grandchildren's private school fees and even buying sports cars to reduce the chunk of their estate they will eventually leave to the taxman.
Inheritance tax is levied at a rate of 40pc on all assets above a £325,000 threshold, known as the nil-rate band. The allowance increases by £175,000 when a main residence is left to direct descendants.
However, these thresholds have been frozen since 2009 even as house prices have risen sharply, meaning even modest estates are increasingly being hit with inheritance tax bills. The allowances are due to remain frozen until 2030.
Daniel Hough, financial planner at RBC Brewin Dolphin, said: 'Retirees and people approaching retirement are increasingly looking to spend more of their pension, rather than risk a big portion of it being lost to inheritance tax when they pass away.
'We have seen clients wanting to spend more of their retirement savings on experiences, like travel, and having an amazing time with their families.
'The fact that the vast majority of respondents are planning to spend more on holidays is unsurprising – we've seen a number of cases where parents or grandparents have decided to pay to take the whole family away on five-figure trips so that they can experience something special.
'There is, of course, nothing wrong with wanting to live as full a life as possible and spend money on your family so that they remember having an incredible time with you. But people need to be very careful not to go overboard and leave themselves short for the remainder of their retirement.'
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