Financial advisers are already receiving calls from wealthy clients about their pension pots after Jeremy Hunt expanded the loophole they provide for inheritance tax.

The Chancellor’s decision to abolish the cap on tax-free pension savings means the wealthiest in society will be able to use their pension pots to pass more money to their children while avoiding the taxman. Pensions do not count towards an individual’s estate for inheritance tax purposes.

During the Budget, Mr Hunt unexpectedly scrapped the £1.07m cap on tax-free pension savings – the lifetime allowance.

“I’ve had several conversations already with regional business owners around how the lifetime allowance change will affect them going forward,” Tim Clasper, chartered financial planner at BHP Chartered Accountants, told i.

“Clearly pensions being free of inheritance tax is a major benefit to those who have other assets they can rely upon to provide an income in retirement and the now seemingly uncapped nature of this has sparked some interest. I suspect this will be a policy area that is revisited in future as it comes under more scrutiny.”

A spokesperson for wealth managers Evelyn Partners told i: “It’s fair to say that our technical teams are quite busy picking apart the detail of the new HMRC rules around the vanishing lifetime allowance and that our planners are receiving calls from some of their clients.”

Declan Gamble, a financial planner at Balance: Wealth Planning Limited, said scrapping the lifetime allowance “offered a unique opportunity for clients who haven’t contributed to their pension for several years, to make a large lump sum contribution to their pension scheme and protect more of their estate from inheritance tax”.

The firm said clients had been asking for advice on the lifetime allowance changes.

Mr Gamble said: “Some are considering making more pension contributions as a result, for example. But I think everyone appreciates these proposals haven’t been set in stone yet, and that it’s a good idea to take a breath before making any decisions.

“At the moment what we all need is certainty about what the rules will be and some assurance they will not change again. A short term promise won’t cut it; we are talking about people’s pensions which, by design, are lifetime savings plans.”

Abolishing the lifetime allowance is a Government effort to discourage senior NHS doctors from leaving work or reducing their hours over what were deemed punitive pension rules.

Tom Selby, a pensions expert at investment firm AJ Bell, said the lifetime allowance changes mean anyone with a pension close to or over £1m can keep investing “without having to worry about the growth they enjoy being eroded by a lifetime allowance charge of up to 55 per cent”.

“There will certainly be a big incentive for people to use pensions for inheritance tax planning. Pensions can be passed on tax-free if you die before age 75, while if you die after 75 they are taxed as income when your beneficiary makes a withdrawal. ISAs, on the other hand, count towards your estate for inheritance tax purposes.”

Former pensions minister Steve Webb, now a partner at financial services firm LCP, said more savings are likely to flow into pension pots rather than ISAs following Mr Hunt’s announcement.

“Subject to annual limits on pension saving, people may start to move existing ISAs into pensions,” he added.

Ammo Kambo, a financial planner at wealth manager RBC Brewin Dolphin said: “One of the consequences of removing the limit on the pension lifetime allowance, is that ultimately people can now pass on more to their beneficiaries in a tax efficient way.

“So, if people have saved or plan to save large amounts in their pension, they can continue to reap the benefit of tax relief on the pension contributions and now amass a bigger pot because of the scrap of the lifetime allowance, pass this on to their children or spouses without incurring any inheritance tax.”

However, there is still an annual allowance on pension savings, which Mr Hunt announced would increase to £60,000 from £40,000.

Mr Kambo said: “We undoubtedly will see an influx of those lucky enough to be able to afford to, putting £60,000 a year into their pension pots, because of the benefits in pension tax relief, income tax, capital gains tax and inheritance tax.”

Legal & General Retail said the pension tax changes announced in the Budget had sparked an increase in website traffic.

“From 1pm [on Wednesday] afternoon, the organic traffic volume to all our consumer facing pensions pages were the highest we’ve seen year to date, strongly indicating [the] news focus on pensions has prompted many to think about and re-engage with their pensions.”

Some pension savers have been left confused, though, after Labour pledged to scrap Mr Hunt’s “gilded giveaway” if it wins the next election.

Abolishing the lifetime allowance will cost the Treasury £1bn a year and prevent just 15,000 people from retiring early, according to estimates.

Financial advisers said the lack of clarity from the Government and Labour was “not helpful when people are trying to make important long-term financial decisions”.

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