What voters think of Chancellor Rachel Reeves’ tax rises after a year in office
Archived article: Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Subjecting unused pension funds to inheritance tax (IHT) on death is the most unpopular tax measure announced by the government since entering office, according to a new survey* conducted on behalf of AJ Bell
Just a fifth of Brits (21%) say they support the pension IHT policy, due to come into force from April 2027, while 44% say they’re against the government’s plans.
AJ Bell has warned that the current proposals are likely to result in significant delays and complication in the inheritance process for bereaved families, while subjecting some to punitive rates of taxation. The business has called on the Chancellor to consider alternatives, including extending income tax on pensions to all beneficiaries.
Brits also opposed the decision to raise employer National Insurance, with 41% against the tax rise and just 24% in support. Raising rates of capital gains tax (CGT) and restricting IHT relief available to farmers were also unpopular.
Several tax raising policies did find support, however, with 48% in favour of raising the rates of stamp duty on second homes.
How did Labour end its first year in office?
Labour marked a year in office with a tumultuous week in parliament. Rachel Reeves inherited a challenging situation when she entered the Treasury, and the task has not grown any easier.
Having committed before the election to not raise taxes on workers and putting the headline rate of income tax, VAT and national insurance off limits, government has taken a piecemeal approach to tax rises, increasing taxes on employers, investors and pensioners in the process.
What the nation thinks of tax raising measures
Source: AJ Bell/Opinium. Data from 2,050 UK adults weighted to be nationally and politically representative
How pension IHT will affect taxation
The pension IHT proposals mean any unspent pension assets on death will be treated as part of the individual’s estate and may be subject to inheritance tax.
Once passed to the beneficiary, income withdrawn from the pension can be subject to income tax at their own marginal rate.
The double taxation proposed means that pension assets will be subject to a 64% effective tax rate on death where the pension pot exceeds the IHT nil rate band and the beneficiary is a higher rate taxpayer. In many cases it will be far higher.
This potential double whammy of taxation will be seen as unfair by some and could put off people saving in pensions in the first place, or encourage others to run down pension pots, leaving themselves with little to live on in later years.
In addition, the plans will cause significant delays distributing money to families on death and in some cases may prove unworkable.
Pension schemes will be required to engage with the personal representative of the deceased scheme member. The representative will need to identify all pensions that were held in the individual’s name and determine how much of their IHT nil rate band should be apportioned to the scheme or schemes. This will cause inevitable delays, particularly where no will exists, and in many cases, representatives will not be able to complete the process within the required six-month window.
Liquidity also presents a major challenge under the current proposals. Pension funds holding illiquid assets will often struggle to sell these within six months.
What do the new policies do?
| Capital Gains Tax | Increases from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher rate tax payers. |
| Employer National Insurance | Increases from 13.8% to 15% with threshold lowered from £9.1k to £5k annually. |
| Private School VAT | Removes VAT exemption so standard 20% VAT rate added to private school fees. |
| Pension Inheritance Tax | Unused pension funds included in estate value for inheritance tax from 2027. |
| Non-Domicile Status | Abolished and replaced with residence-based system taxing worldwide income after 15 years UK residence. |
| Second Home Stamp Duty | Increases stamp duty by additional 5% for second homes and buy-to-let properties. |
| Winter Fuel Clawback | All pensioners receive Winter Fuel payments initially, but those earning over £35k must repay through tax system. |
| Farmers' Inheritance Tax Relief Restricted | Full 100% relief only applies to first £1m of agricultural/business property, amounts about £1m get 50% relief. |
Alternatives to the pension IHT
AJ Bell has called on the Chancellor to explore alternative measures put forward by the industry as part of the consultation process. There are two options which could be simpler and fairer:
- Given that ISAs are already subject to IHT on death, there is a pre-existing template for the reform of pension taxation on death. That would mean investments are treated equally as part of the estate.
- Apply income tax on withdrawals at the marginal income rate of the beneficiary. This offers a fair system in which those inheriting pensions with the highest incomes pay more tax, while also offering simplicity given pension assets are already subject to income tax where the member dies after age 75.
*Data collected by Opinium on behalf of AJ Bell between 27-27 July 2025. Sample of 2,050 UK adults weighted to be nationally and politically representative.