Newsletter Autumn 2014

Pensions death tax

George Osborne has announced another major change to the taxation of pensions. The details will follow later, but the initial impression is surprisingly generous.

Currently, if you die before you've started to draw your pension, your pension savings aren't included in your estate. The fund is usually paid to your dependants without IHT. However, if you've started your pension, or if you’re over 75, there can be 55% income tax to pay on a pension fund passing under your will.

From April 2015, the 55% charge will go. If you die before age 75, you'll be able to pass on undrawn pension funds with no tax to pay, and the beneficiary won't be taxed on accessing the fund.

If you die at 75 or over, drawings from the inherited fund will be charged at the beneficiary's marginal income tax rate in the year in which they receive the money. That's a maximum of 45% and could be only 20% or 40%.

If you die having bought an annuity with your pension savings, there is no fund to pass on, unless the annuity contract provides for a lump sum to be paid on your death.

These changes are really going to shake up pensions and IHT planning. Talk to us about your options.