Chancellor George Osborne confirmed during his speech to the Conservative Party conference in Birmingham today (29 September) that the government would abolish the 55 per cent ‘death tax’ on pensions, telling savers “it is your money... [and] you should be able to should be able to decide what you want to do with it after you die”.
Mr Osborne announced that pension funds paid out before or after the age of 75 will no longer be subject to the 55 per cent tax charge when transferred as a lump sum within a pension. If death occurs under the age of 75, no tax will apply even if the fund is withdrawn as a lump sum.
As it currently stands, where a person dies aged over 75 the 55 per cent tax charge applies to the whole fund, regardless of whether the customer had taken any withdrawals from their pension. Where a person dies before the age of 75 and has started to take withdrawals, it applies to the “crystallised fund”.
Drawdown will also be able to be passed to inheritors as pension assets, tax free. The changes are initially expected to cost the Treasury £150m.
The second wave of pension changes apply to all payments made from April 2015, however if someone died today the payment could be delayed until April 2015, making the new changes “effective today”.
Speaking today to a BBC journalist, Mr Osborne said: “This is for everyone who works hard and saves hard for their retirement. There are people with pension pots of £20,000, £30,000, £40,000 pounds who currently pay a 55 per cent tax if they try to pass any of that unused pension to their children and grandchildren and others.
“I am getting rid of that tax altogether and I am saying if you have worked hard and saved hard and it is your money then you should be able to decide what you want to do with it after you die. It is a big boost for savings, it is a big boost for aspiration, it is on the side of people doing the right thing for themselves and their family.
“This isn’t some kind of promise for the future, this is effective today.
“People watching this programme with pension pots saving for their pension, not just pensioners, but people in their thirties and forties going out to work and saving for a pension, they will now have the security of knowing they will be able to pass that pension pot on if they haven’t used it when they die, effectively tax free, and that is an example of an economic plan that works for you.
“This is a measure for people who save and many millions of people do save, people who save small amounts will benefit from this if they save into a pension.”
