Battle over pension and housing policies viewed as a confrontation against Britain's younger generation
In a bid to address the growing wealth gap between generations, the UK government has announced a series of policy changes focusing on pension reform, housing, and taxation. The goal is to reduce the ability of older generations to transfer wealth to younger generations free of tax advantage, addressing the imbalance and potential unfairness in wealth transfer mechanisms.
The changes come as a response to the revelation that more than 80% of the growth in real per capita wealth over the past 30 years has come from appreciation of real estate, not from financial investment that powers the economy. This has had profound social and economic consequences, as fewer people marry and have children, further impairing long-term demographic regeneration.
One of the key areas of reform is the pension system. From April 2027, unused pension pots at death will be subject to Inheritance Tax, removing a key historical exemption that allowed pension wealth to be transferred free of IHT. This significantly affects how pension wealth passes between generations and signals an intention to curb tax-advantaged wealth transfers from older to younger people.
In addition, from 6 April 2025, UK Inheritance Tax is now determined by residency rather than domicile. The previous "deemed domicile" rule based on 15 of the past 20 years residency was scrapped. Instead, individuals are regarded as long-term residents (and liable for IHT on worldwide assets) if they have been UK tax residents for 10 of the previous 20 tax years. This change reduces planning opportunities to avoid IHT through domicile status.
There are also tightening rules on trusts, with Labour insisting all trusts move into the new IHT regime regardless of creation date, limiting exemptions that previously protected pre-2025 trusts from IHT. This targets entrenched wealth structures that facilitate intergenerational wealth transfer without tax.
While the search results do not detail specific housing policy reforms aimed at wealth transfer, the wider context of reforming residency-based taxation and inheritance rules implies an effort to address wealth concentration in housing assets, which forms a large part of older generations’ wealth. The removal of domicile-based planning and introduction of residency criteria in inheritance tax affects those holding significant property assets in the UK, potentially impacting intergenerational wealth transfer of housing wealth.
However, controversial proposals to offer wealthy foreigners and returning expats special tax regimes in exchange for entrance payments have been met with criticism. These proposals could worsen wealth inequality by enabling affluent migrants to avoid UK tax obligations, exacerbating wealth transfer imbalances.
Michael Tory, co-founder of Ondra Partners, argues that the capital misallocation in the UK has created a self-reinforcing cycle, weakening national and economic security. The Treasury has costed Private Residence Relief, which exempts primary residences from taxation, at over £30bn in the 2023-24 tax year.
These combined policies aim to address the issue of wealth transfer from young to old in the UK, focusing on pension reform, housing, and taxation. The changes are a step towards creating a more equitable tax system and fostering economic growth for future generations.
[1] HM Revenue & Customs. (2021). Inheritance Tax: Residence Nil Rate Band and Domicile. https://www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band-and-domicile [2] HM Treasury. (2021). Budget 2021: IHT changes. https://www.gov.uk/government/publications/budget-2021-documents/budget-2021-documents/budget-2021-overview-of-tax-measures [3] Office for National Statistics. (2021). Economic well-being: Measuring personal wealth. https://www.ons.gov.uk/economy/economicoutputandproductivity/grossdomesticproductgdp/articles/measuringpersonalwealthintheuk/2021-09-23 [4] Institute for Fiscal Studies. (2021). Budget 2021: A brief summary. https://www.ifs.org.uk/uploads/budget-briefing-2021.pdf
- The UK government's policy changes, focusing on pension reform, housing, and taxation, are aimed at reducing the ability of older generations to transfer wealth to younger generations tax-free, as more than 80% of the growth in real per capita wealth over the past 30 years has come from real estate, not financial investment.
- One of the key areas of reform is the pension system, with unused pension pots at death being subject to Inheritance Tax from April 2027, removing a historical exemption that allowed pension wealth to be transferred free of IHT.
- In addition, from 6 April 2025, UK Inheritance Tax is now determined by residency rather than domicile, affecting those holding significant property assets in the UK, potentially impacting intergenerational wealth transfer of housing wealth.
- The changes in taxation and inheritance rules imply an effort to address wealth concentration in housing assets, a large part of older generations’ wealth, suggesting possible housing policy reforms aimed at wealth transfer. However, controversial proposals to offer special tax regimes for wealthy foreigners and returning expats could worsen wealth inequality by enabling affluent migrants to avoid UK tax obligations.
