Rachel Reeves' tax raid 'to cost average homeowner £82,000'

Rachel Reeves's raid on pensions and inheritance is set to hit even modest families with tax bills of more than £80,000, new analysis has claimed.

A single working-age homeowner in England with an average-priced property worth £290,395 and a "moderate" pension pot of £415,000 would face an inheritance tax (IHT) bill of £82,158 once the Chancellor's reforms come into force in 2027.

Under rules announced in the October Budget, pensions will no longer be exempt from death duties and will instead face a levy of up to 40%.

The change is expected to more than double the number of estates dragged into IHT, with the share rising from around 4% today to almost one in ten (9.7%) under Labour.

On top of this, Ms Reeves is said to be weighing up a fresh grab by introducing a lifetime cap on gifts made before death - a move likely to alarm middle-class families trying to pass on their savings.

Inheritance tax is currently charged on estates above £325,000 - the so-called "nil-rate band" - with a further £175,000 allowance if the family home is left to direct descendants.

But in London, where average house prices are far higher, the impact will be brutal. Someone owning a typical home worth £565,637 alongside a £415,000 pension would be hit with a tax bill of £192,254, according to wealth manager Quilter.

Adding to the squeeze, Rightmove predicts house prices in England will rise another 4% in 2025, pushing even more estates into the tax trap.

Pensions experts warn that the reforms are particularly harsh because families will be taxed even if their loved one dies before being allowed to draw down savings at the age of 55. At present, pensions can be passed on tax-free if the saver dies under the age of 75, up to a limit of £1.07million.

The Treasury has insisted the new rules will raise around £1.5billion a year by 2029-30. But critics say the raid will devastate bereaved families.

Jon Greer, of Quilter, told the Telegraph: "Charging inheritance tax on a pension someone could not access and will never be able to use due to passing away before the minimum pension age is optically terrible for the Government.

"It is even more unjust for cohabiting families who have no spousal relief or ability to transfer tax allowances. A grieving family with young children and an average-priced home could face six-figure inheritance tax bills at the most distressing time.

"Married couples are protected by exemptions and allowances - cohabitees aren't. Policymakers should consider carve-outs or transitional reliefs for working-age deaths, particularly when young children are involved.

"Without change, this policy risks compounding the emotional toll of bereavement with a financial hit that can destabilise a family's future despite raking in very little in additional revenue."

A Treasury spokesman defended the reforms, saying: "We continue to incentivise pensions savings for their intended purpose - of funding retirement instead of them being openly used as a vehicle to transfer wealth - and more than 90% of estates each year will continue to pay no inheritance tax after these and other changes."