Last week Money revealed how fears of an imminent “middle-class tax grab” had triggered a wave of panic among savers and homeowners. Speculation about what could be included in Rachel Reeves’s second budget — from cuts to the 25 per cent tax-free pension lump sum to tighter inheritance tax rules — has already prompted families to rethink their finances.
Financial advisers told The Sunday Times that they have been receiving calls from anxious clients who are worried about everything from gift allowances to the future of their pension savings. Many advisers urged people not to act rashly, recalling the chaos before last year’s budget when thousands withdrew pension cash in anticipation of changes that never arrived.
Since then we’ve been inundated with messages from readers who say they are scrambling to protect their money. Some are bringing forward retirement plans; others are busy making gifts to children or rushing to draw down pension cash. Here are some of your stories.
‘My wife may have to give up her NHS job’
Tony, 62, Oxfordshire
I’ve worked for myself for more than 25 years as a construction project coordinator, small-scale property developer and project manager, typically tackling one or two houses a year, or occasionally a small block of flats. My income is about £35,000 a year and with the part-time earnings of my wife, Clare, our family income is approximately £55,000. It’s never been lavish, but it has been enough to provide for our family and, I had hoped, to build a modest business I could one day pass on to our daughter, Eleanor.
That plan feels impossible now.
Our daughter, who is ten, has autism and dysgraphia [a neurological condition that affects writing skills]. The support in local state schools is simply inadequate for her needs. The Send system (special educational needs and disabilities) is overwhelmed; education, health and care plans are a bureaucratic battle; and classes are too big and noisy for a child like Ellie to cope. We have no choice but to send her to a private school that can meet her needs, even though fees of at least £24,000 a year — soon to increase with the addition of 20 per cent VAT — are far beyond what we can cover from our after-tax income.
• How an inheritance tax raid could work — and what you can do about it
That leaves two options: I take large withdrawals each year from my self-invested personal pension, which is also supposed to pay off our mortgage in six years; or Clare gives up her NHS job to school Ellie at home. We know from experience that Ellie would not last long in a mainstream state secondary, but if Clare had to stop work entirely, the NHS would lose a senior frontline professional. Inevitably local waiting lists would grow again, as they did last year when she took five months off work because of stress caused by Ellie’s school situation. Either way, the financial impact on our retirement will be severe.
At the same time, government policy has made my business almost unviable. After 25 years I have exited the rental sector altogether, because the rental reform bill, new energy performance certificate rules, tax changes and the risk of one bad tenant wiping me out financially have destroyed profitability.
It’s not just housing: I’ve already lost £150,000 of expected inheritance because my mother developed dementia and there was no national insurance scheme for care and no affordable private cover. My sister and I had to sell her house to fund almost a decade of care. Meanwhile, inheritance tax threatens to swallow up whatever modest family assets we have left, even though neither Clare nor I have ever paid 40 per cent tax in our lives.
‘I may have to retire early just to protect my pension’
Anonymous, 66, Surrey
I’m 66 and hadn’t planned to retire for some time. Now, because of all the speculation about the tax-free lump sum being slashed, I’m seriously considering bringing that forward, just to protect what I’ve worked for.
• A ham-fisted inheritance tax grab on the middle class would end in tears
I could cope with the threshold being reduced to £100,000 [from £268,275], though I know others would be hit harder. But cutting it all the way to £40,000 would be beyond the pale. That would mean potentially tens of thousands of pounds — money I’ve saved during nearly four decades of work — effectively being handed straight to HM Revenue & Customs.
I live alone in a two-bedroom flat in Surrey, with the mortgage recently paid off. I’ve never had a particularly high salary, but I’ve worked for 38 years in a non-departmental public body, steadily building up my pension. The lump sum I’d be entitled to is not some windfall or greedy grab; it’s the accumulation of decades of contributions and the expectation that it would be tax-free.
The mere idea of cutting it to £40,000 overnight has created real alarm. Everyone I’ve spoken to at work is deeply worried — even those who are ten years away from retirement. For me, it’s changing how I think about my future: I either retire now, or potentially carry on indefinitely until the political landscape changes.
‘We’re being pushed into the worst of all worlds’
Anonymous, 68, Somerset
I retired a few years ago after working in IT for more than 25 years, and like many people I have a pension pot alongside my state pension and some savings. But with the way the government is treating pensions and taxing assets, I find myself thinking the unthinkable: that I’d be better off pulling out the maximum tax-free lump sum and quite literally keeping it under the bed.
I haven’t rushed to take out all my money, partly because people are being advised not to act irrationally. But the logic is compelling. The government says it wants people to save for the future, yet it penalises us for doing just that. It’s counterintuitive and, frankly, counterproductive.
• We all should worry about this underhand attack on wealth
I am certainly looking at giving some away, but I need to be sure that Reeves won’t increase the seven-year gifting rule [the time after which gifts fall out of an estate for inheritance tax purposes] to ten or more years.
I live with my wife in Somerset in a house that will also fall into inheritance tax when the time comes, together with our pensions. It feels like whatever we do, we’re being pushed into the worst of all worlds.
‘I’ll be very bitter if my tax-free lump sum is taken away’
Simon Greenway, 63, Warwickshire
I’m 63 and semi-retired after selling my packaging business in 2021. Now I do a small amount of consultancy work for the company that bought it. My wife and I live in a mortgage-free house, and I’ve been carefully planning for retirement since I was 21, when I was first obliged to contribute 5 per cent of my salary into a pension. At the time, I could barely afford it; looking back, it was the best decision I ever made.
• Should you pay inheritance tax on pensions?
For more than 40 years I’ve built up a significant pension pot. The assumption was always that 25 per cent of it could be taken tax-free. That was the deal. Now there’s all this speculation that the tax-free lump sum could be capped or even cut dramatically. I haven’t taken anything out yet because I don’t need to — I have other investments, such as Isas, which I draw on first. But if I lost the tax-free entitlement I’d be extremely bitter.
I’ve got a meeting with my financial adviser next week to discuss whether I should take the 25 per cent now, just in case. But it feels wrong to be forced into making decisions on the basis of rumour. The money is growing well in my pension, far better than the 5 per cent or so I could realistically achieve by reinvesting it elsewhere. Taking it out early would leave me worse off in the long run.
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