People will be able to pass their pension fund onto the next generation tax-free from next April, George Osborne has announced today.
Currently, pension savings can be taxed at a 55% tax rate in two sets of circumstances:
- Where a person aged 75 or over dies, 55% tax is payable on the remaining fund where a lump sum is paid out
- Where a person dies before age 75, and had started to take withdrawals from their pension fund (eg is using income drawdown or has taken tax-free cash), the 55% tax rate applies to the part of the fund that has been touched.
The proposals today:
- There will be no tax to pay on an inherited pension fund where someone dies before age 75
- Where someone dies after age 75, the rate of tax due on the pension fund would be determined by the income tax position of the person inheriting the pension. This could be 0%, 20%, 40% or 45%.
Julie Hutchison of Standard Life welcomed the news: “This means pensions are now truly effective for income and inheritance-tax planning. It creates a genuine incentive to save, knowing your loved ones can benefit too, helping older family members support younger generations who find it harder to save. The savings revolution, which began in March and continues with today’s announcement, now places pensions firmly centre stage.”
Full details will be announced in the Autumn Statement on 3rd December.
With a number of changes coming up for the savings and pensions market, it is more important than ever that those planning for retirement seek professional financial advice. Find an independent financial adviser using Unbiased.co.uk.