Savers have a keen eye on the forthcoming Autumn Statement following the shock announcement by the Chancellor to scrap the current 55 per cent tax charge on pensions passed on to family members.
George Osborne’s planned Autumn Statement in December is expected to finally clarify the detail of the tax cut which is expected to cost the Treasury £150 million each year.
The abolition of the ‘Death Tax’ follows quickly after the rules being scrapped which forced many retirees to use their pension savings to buy an annuity.
Diane Lang, consultant from Ludlow Wealth Management Group commented on the Chancellor’s latest move: “Pensions have always been an effective means to save for retirement but the removal of this tax gives an additional incentive to save.
“Currently if someone aged 75 or over dies, a 55 per cent tax is imposed on the pension. However, the change proposed by the Chancellor will mean that beneficiaries will only have to pay their marginal income tax rate, currently 20, 40 or 45 per cent depending on the individual. They will be able to access the pension funds at any age, with no restriction on how much of the fund can be withdrawn.
“Furthermore, when someone under 75 dies, their pension fund will pass tax-free to any nominated beneficiary and they won’t have to pay any tax liabilities when they withdraw money from that pension.”
According to the Treasury approximately 12 million people in the UK have a pension that would benefit from the tax cut. The new rules are expected to come into force from the April 6 2015.
Diane added. “We’re expecting more detail to be announced because at this stage it’s unclear how the implementation of the new rules will work in practice. The next piece in the jigsaw is to see what the Chancellor reveals in the Autumn Statement.”