Advisers have sounded a cautious note over the abolition of the 55 per cent ‘death tax’ on pension funds passed on after death, branding it “too good to be true” and saying they expect more detail in the legislation which will water down the original proposals.
At the Conservative party conference on 29 September, chancellor George 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.
In addition, beneficiaries of those who die under the age of 75 will not pay any tax on withdrawals, even if they take the fund as a single lump sum. Over the age of 75 withdrawals will be taxed at marginal rate and lump sums initially at 45 per cent.
The measure will apply to all payments made from next April and, according to FTAdviser sister publication the Financial Times, it is initially expected to cost the Treasury £150m.
Now, it seems advisers are concerned that the new proposals for death tax may change when they are legislated.
Claire Trott, head of technical support at Talbot and Muir said she had been speaking to advisers who had given her the impression that the announcements “sound too good to be true” and “hence they believe there may be some hidden bits that come out in the legislation that may result in unforeseen consequences”.
Ms Trott said: “This is really because of the rushed nature in which it was announced with more detail following a few days later.
“They feel that there will likely be parts that have not been fully thought through which will result in tweaking the legislation up until the last minute making planning quite difficult for them, especially those that are already in receipt of benefits.”
Steven Robinson, managing director at adviser firm Clarke Robinson and Co Ltd, told FTAdviser: “If it sounds too good to be true then it usually is - I think it applies in this case.
“I wouldn’t be surprised to see more details that don’t make it as generous as it appears to be. We are just guessing in the darkness on this what the final shape is going to be.
“With the election coming up in May it could be that there isn’t enough time to implement the latest announcements before then. They’ve said it’s only going to cost £150m in tax loss which means they’ve come up with something very specific [already] to get a figure like that.
“It depends on whether or not they rush it through before the election. The next finance bill is due in July 2015 - so if we have a change of government then the new government might change it all before it goes through.”
Laurence Sanderson, independent financial consultant at Sterling and Law, branded the new rules “pretty generous”.
He said: “I don’t really trust these things until they are written in legislation. For example, I wouldn’t advise someone to go into drawdown if they were worried about it because the legislation is not yet in place.
“A lot of these things they announce and they haven’t really thought about the end game - if they do change what they said it would be to reduce something. I will wait and see what is going to happen before making any recommendations.”
However, Gerry McKeon, managing director at GM Financial Services, disagreed that the changes are “too good to be true” and argued they are a sensible consequence of the broader pension freedoms announced initially at the Budget.
He said: “I don’t think it will be too good to be true - there’s always been problems with the 55 per cent tax charge and the difference is now they’ve removed the distinction between crystallised and uncrystallised sums.
“It’s something that should have been removed a long time ago; its removed an unfair charge.”
However, Mr McKeon acknowledged that “there’s still some uncertainty about how its actually going to work”.
ruth.gillbe@ft.com
