Gordons comments on Chancellor George Osborne’s announcement to cut 55% pension ‘death tax’
Monday 29th September 2014
The Chancellor has announced that, from April 2015, the tax that may be suffered on lump sum benefits leaving certain kinds of pensions (including Self Invested Personal Pensions and Small Self-Administered Schemes) will be reduced from the current maximum rate of 55%, to the equivalent of the marginal rate of income tax. Whilst full details have yet to be published, for most people this would amount to a 10% tax cut (assuming the income tax rate isn’t raised in line with the cut!).
The tax rules that apply to such pensions are complex, and there are situations where the full amount of lump sum benefits payable on death can come out tax free.
It is important to remember that the tax being discussed is a pension tax, rather than Inheritance Tax. Under current legislation, no payment of such death benefits attracts Inheritance Tax on the pension holder’s death, even if the pension tax being discussed is payable. However, the person receiving the lump sum will often pay a significant amount of inheritance tax on it when they pass away. The Chancellor’s proposals will not alter these consequences.
Through careful and flexible planning, which Gordons have put in place for a number of clients, it is possible to save 40% of the value of any lump sum payable for the benefit of the pensioner’s children.
Click here to read the related news story featured on the BBC, 29 September 2014