Hunt urged to launch death duty raid on pension pots

JEREMY HUNT has been urged to demand inheritance tax on pension pots by one of Britain’s most influential economic think tanks.

The Institute for Fiscal Studies (IFS) has said the Chancellor could raise £1bn to £2bn in the coming decades by ending the tax-free passing on of unspent pension funds.

Experts at the IFS also urged Mr Hunt to scrap exemptions for the passing on of agricultural land.

David Sturrock, senior research economist, said: “Inheritance tax is littered with special reliefs and exemptions, which make the tax unfair.

“Rather than gradually carving out more and more assets from the tax, the Government should take steps to reduce or eliminate some of the major exemptions in the system.

“Eliminating the special treatment given to some shares, capping reliefs for business and agricultural assets, and bringing pension pots into the scope of the tax would make the system fairer and raise revenues.”

Under existing rules, people with defined contribution pensions can bequeath any money left when they die without incurring an inheritance charge. The think tank said this loophole encourages wealthy people to fund their retirement in other ways, and hoard pension savings to avoid tax.

The argument comes in an analysis of inheritance tax reliefs for certain types of assets after the Chancellor in the Budget announced such exemptions would be expanded to agricultural land. It follows reports over the past year that the Treasury was thinking of abolishing or significantly reducing the tax.

Yet, after several fiscal statements, no such policy has yet emerged.

The IFS said that Mr Hunt could significantly lower the rate of inheritance tax or raise money for other spending by scrapping the exemptions and simplifying the system.

Shares in companies listed on London’s Alternative Investment Market (Aim) also receive special treatment if held for two years before death. Removing this exception would raise £1.6bn by the end of the decade, the IFS said.

It added that capping the relief on the bequeathing of a family firm or agricultural land to £500,000 per person would raise £1.8bn by 2029-2030.