THE 55% TAX RATE applied to pensions upon the saver’s death will be abolished, allowing more to be left for the next generation, the chancellor is to announce today.
The move will take effect from April 2015 and will benefit an estimated 320,000 people per year with defined benefit pension schemes, while the Treasury is set to miss out on £150m annually following the change.
Currently, if you die before 75, any remaining pension pot faces the tax unless it has been left untouched.
Critics maintain the arrangement favours the wealthy, who can delay drawing on their funds. To escape the tax, the fund holder must survive past 75 and leave the untouched fund to a spouse or dependent younger than 23.
Inheritors will now only pay the marginal income tax rate, or no tax at all if the deceased was under 75 and the pension is left untouched.
The scrapping of the 55% rate follows March’s Budget, in which the chancellor (pictured) announced pensioners would have the freedom to cash in as much or as little of their pension pot as they wanted, removing the need to buy an annuity.
George Osborne will the the final Conservative Party Conference before next year’s general election: “People who have worked and saved all their lives will be able to pass on their hard-earned pensions to their families tax-free.
“The children and grandchildren and others who benefit will get the same tax treatment on this income as on any other, but only when they choose to draw it down.
“Freedom for people’s pensions. A pension tax abolished. Passing on your pension tax-free.
“Not a promise for the next Conservative government – but put in place by Conservatives in government now.”
In a separate development, he government’s older workers tsar has warned Labour’s plans to introduce a ‘mansion’s tax’ unfairly penalises pensioners who cannot afford to pay it.
Ros Altmann, the former head of Saga, said that the tax on properties worth more than £2 million poses significant “dangers” for older people who have little income but have lived in their homes for most of their lives.
Original article written by and sourced from – accountancyage.com