Pensions Raid Threatens Family Businesses with Collapse

Strategic Insights -

Rachel Reeves's plans to drag unspent pensions into the inheritance tax net from 2027 have sparked warnings that thousands of family businesses could collapse under the weight of crippling inheritance tax bills. The move, announced in last year's Budget and confirmed this month, will leave 15,000 businesses that run their own individual pension schemes facing a 40pc death duty when members pass away. This could result in family members facing inheritance tax bills of up to 67pc when both inheritance tax and income tax are payable, and even over 90pc in some cases.

Key Takeaways:

  • The changes announced by Rachel Reeves will affect around 15,000 businesses that run their own individual pension schemes.
  • These businesses will now be subject to a 40pc death duty when members pass away, with inheritance tax bills potentially reaching up to 67pc or even over 90pc.
  • Small self-administered schemes (SSAS), which are pension schemes set up by directors that usually admit up to 11 employees, will be particularly affected.
  • These schemes are often used to buy commercial property and pay rental income to their members, but will now be liable for inheritance tax when the business owner dies.
  • Business owners speak of a "breaking of a promise" and "daylight robbery" due to the loss of the inheritance tax-free status of their SSAS schemes.
  • The changes could have serious consequences for the 12,500 to 15,000 small businesses that currently rent properties from pension schemes, potentially leading to job losses or business closures.

Statistics:

  • 15,000 businesses that run their own individual pension schemes will be affected by the changes.
  • These businesses will face a 40pc death duty when members pass away.
  • Inheritance tax bills could reach up to 67pc when both inheritance tax and income tax are payable.
  • Some benefits may pay over 90pc when inheritance tax is payable.
  • In 2027, pensions will form part of someone's estate.

Sources:

  • "Pensions raid threatens family businesses with collapse." Byline: Rob White, Money Writer Rachel Reeves's pensions raid could drive thousands of family businesses to collapse.
  • The Telegraph, 2023, "Pensions raid threatens family businesses with collapse, experts warn."
  • Evelyn Partners, 2023, Statement by Gary Smith on the impact of the Treasury's changes to pensions and SSAS.
  • The Telegraph, 2023, Quote by Gary Smith, "It is further punishment for those retirees who have prudently saved into their pensions throughout their lifetime..."
  • A Treasury spokesman, 2023, Statement on the changes to pensions and inheritance tax.