Labour is coming for everything you’ve ever worked for – here’s how to protect it.
Rachel Reeves’ decisions signal more pain to come for retirees
Mattie Brignal, SENIOR MONEY REPORTER3 August 2024 •
Britain’s pensioners are often accused of getting an easy ride. For years, parties of all stripes have been keen to offer fiscal perks to the demographic most likely to turn out to vote.
But this week, Rachel Reeves signalled that those days are over under Labour.
The Chancellor’s decision to scrap winter fuel payments for 10 million pensioners and ditch a cap on care costs was a statement of intent.
Experts say that Labour has shown that it views retirees’ wealth as fair game – and that there’s more pain to come.
It comes after Ms Reeves promised not to raise taxes on “working people”, leaving pensioners firmly in the crosshairs for further spending cuts and tax rises in the Budget on October 30.
Here’s how you can protect your wealth from a Labour tax raid on retirees.
Social care cap
The Tories’ social care cap would have meant no one having to spend more than £86,000 on care over the course of their lifetime, regardless of income or age.
Only money spent on personal care would have counted towards the cap. Accommodation, meals and heating were excluded, meaning the average person would have paid around £238,700 for their care before reaching the cap, according to research by LaingBuisson.
But Ms Reeves’ decision to scrap the policy will mean families now face footing a potentially unlimited bill themselves. It raises the prospect of a lifetime of savings being wiped out, leaving nothing to pass on to loved ones.
The cost of care has soared in recent years, with care home fees 20pc higher in 2023-24 than two years earlier.
Average care home fees per week by type of care
| Permanent | Respite | |
|---|---|---|
| Residential | £1,156 | £1,337 |
| Residential + dementia | £1,318 | £1,413 |
| Nursing | £1,457 | £1,573 |
| Nursing + dementia | £1,510 | £1,640 |
Source: Lottie
Natasha Etherton, of wealth manager Evelyn Partners, said removing the cap will be a “devastating blow” for those receiving care.
Pensioners may feel they have to sell their homes to cover care costs. If your care home is arranged by the local council, it will run a financial assessment to see how much of the cost you should pay.
If your total assets are valued above £23,250, then it’s likely you will have to fund your own care.
There are some circumstances where your home won’t be included in the assessment – for example, if you receive care at home, or if your partner or a relative over 60 still lives in the home.
But if your eligible assets exceed this total and you have no savings, you may be forced to sell.
Letting a property to generate rental income would be one way to avoid selling up, Ms Etherton said.
Another option is equity release, which allows you to unlock a chunk of cash from your home without selling it. However, the interest due on the money taken out can make equity release an expensive option.
Alternatively, pensioners could opt for an “immediate needs annuity” to guarantee a secure income. Annuities are an insurance product that exchange a cash lump sum, often from a pension pot, for a guaranteed income until death.
Ms Etherton said: “Like a pension annuity, [the immediate needs annuity] pays out an income for life and is medically underwritten. But unlike a pension annuity, it can provide a tax-free income if paid direct to a care provider.”
Winter fuel payments
Ms Reeves has said she will strip winter fuel payments worth up to £300 from all pensioners who do not receive pension credit or other means-tested benefits. The cut will affect 10 million people over the age of 66.
Pension credit is a benefit to help with living costs for those over state pension age who are on low incomes. It tops up your weekly income to a guaranteed minimum level – £218.15 if you’re single or £332.95 for a couple.
Around 1.4 million people received pension credit in August 2023, two thirds of whom were women, according to official figures.
However, around £2bn of pension credit goes unclaimed this year, meaning thousands of pensioners are missing out.
If you already receive pension credit, then you do not need to do anything – you will automatically continue to receive winter fuel payments.
If you do not already receive it, you will need to claim, but only if you have not received the winter fuel payment before.
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Death taxes
Inheritance tax (IHT) is currently not charged on pensions and Labour has denied that a pension death tax is “party policy”.
But experts have warned that Labour will be tempted to extend the scope of IHT to cover pension pots. Tom McPhail, of consultancy The Lang Cat, said a death tax raid on pensions was “very likely”.
IHT is levied at 40pc on the value of an estate worth over £325,000, although caveats apply.
Currently, if someone dies before the age of 75, any of their unused pension is inherited tax-free. For anyone who dies after this age, income tax applies at the point the beneficiary withdraws the money.
But analysis shows that families inheriting a £100,000 pension – roughly the size of the average pension pot for a 55 to 64 year old – could be stung with a £65,000 tax bill if IHT were applied.
Inheritance tax dues hit a record £7.5bnUK total inheritance tax payable per financial year
You can pass on assets of unlimited value to a spouse or civil partner without any inheritance tax liability.On top of the £325,000 allowance, homeowners get an additional £175,000 tax-free – called the “residence nil-rate band” – if they pass their main property to family members.
And as spouses and civil partners can combine their allowances, they can pass on a total of £1m wealth without incurring a tax bill.
One of the simplest ways to avoid an IHT bill is to give away your assets during your lifetime.
An often overlooked but highly tax-efficient method is to give money out of surplus income. This must be money you can give away regularly without significantly changing your lifestyle; it cannot be money that comes from a house sale, for example.
Capital gains
Capital gains tax (CGT) is levied on the profit made when an asset is sold. It is currently charged at 10pc or 18pc for basic rate taxpayers, and 20pc or 24pc for higher or additional rate earners.
However, the Chancellor was lobbied by Labour members in the run up to the election to align the rates of CGT with those of income tax.
This would mean a steeper tax bill for business owners and sellers of second homes, including pensioners with buy-to-let properties and other assets such as shares.
If you hold investments outside of a tax-free wrapper, the best thing to do is transfer them into an Isa. One way to do so is known as “bed and Isa”.
The annual allowance for an Isa is £20,000, while most taxpayers can contribute up to £60,000 a year into their pension without paying tax.
If you are already sitting on large capital gains, you can sell the assets to realise a gain up to your remaining CGT allowance and then repurchase the investments within your Isa or pension to protect any future gains from the tax man.
Investors have already suffered from changes to investment profit tax rules. The annual tax-free allowance for capital gains tax was cut from £12,300 to just £3,000 under the previous government, making it much easier for investors to incur a liability.
Protecting your wealth
Keep more of your income. Take these steps if you're a higher-rate taxpayer and avoid the 40pc tax even if you earn £110,000.
The new government has promised not to increase the UK’s main tax rates but other taxes remain in their crosshairs. Telegraph Money explains how to protect yourself from potential wealth raids from Labour.
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