Osborne vows to axe pensions “death tax”

The chancellor, George Osborne, has pledged to abolish the so-called death tax on pension funds, announcing measures that will allow retirement pots to sidestep the 55% due when the holder dies.

The change is scheduled to come into effect in April next year, when individuals with a drawdown arrangement or uncrystallised pension fund in a defined contribution (DC) scheme will be able to nominate a beneficiary to receive their pension.

A person who dies below age 75 will be able to give the remaining DC pension to anyone tax free, whether it is in a drawdown account or untouched, as long as it is paid out in lump sums or is taken through a flexi access drawdown account. The arrangement will apply to annuities or scheme pensions.

The taxpayer receiving the pension will pay no tax on money withdrawn as a single lump sum or accessed through drawdown.

Osborne’s plans also mean those aged 75 or over at the time of death will be able to pass their pension to any beneficiary, who will then be able to draw down on the funds at their own marginal rate of income tax. There will be no restrictions on how much of the pension pot  the beneficiary can withdraw at any one time.

Beneficiaries will have the option of receiving the pension as a lump sum subject to a 45% charge, if the deceased was over 75. The government will consult on rules that make such payments taxable at the marginal rate from 2016/17.

A 55% tax charge on inherited pensions applies at present when an individual wants to pay a DC pension after death to somebody as a lump sum, and where the money is in drawdown or has not been touched. The holder can also pass a pension to a dependant, who can then draw down on at their marginal rate of tax.

Issue: 4471 / Categories: News , Inheritance Tax