money-pensions_1974994b

55% “death tax” on pensions abolished

Headline for votes but what is the reality?

It is safe to say that the recent announcements during the Conservative Party Conference have certainly turned heads. Following the scandals and subsequent resignations of Mark Reckless and Brooke Newmark, it was essential that David Cameron and George Osborne used this conference to create positive headlines ahead of next year’s General Election.

So what has changed?

Well, nothing yet; the changes announced are to take effect from 6 April 2015. It is also essential to understand that these changes were contained in a publication and are yet to be underpinned by legislation – or even draft legislation. This means that there may be further changes subject to the draft legislation that will be published following the Chancellor’s Autumn Statement in December.

The following has been announced:

  1. Benefits taken on death before the age of 75 will create no taxable charge at all, whether taken as an income or a lump sum. It is difficult to see how pension income could escape UK tax as this contravenes basic principles of taxation. We will see whether this is borne out in the legislation itself.
  2. After age 75 the 55% charge has been reduced to a 45% fixed rate charge regardless of whether or not the pension has been crystallised. It would be a safe assumption that the scheme administrators would apply this as they currently do. Effectively, the mechanics of the charge are likely to remain the same, the only change being a reduction in the rate (from 55% to 45%).
  3. Currently, it is possible for Spouses or Dependents to benefit from a pension on death; it is proposed that this should be extended to any beneficiary who will then be taxed at their marginal tax rate.
  4. Due to the new Flexi Access rules, at this stage it appears it will be more tax efficient for beneficiaries to utilise this facility of receiving funds rather than taking the full lump sum.

At face value, the above pension reform announcements appear to be positive news for pensioners. However, we will have to wait for the legislation to be released before any changes, repercussions and/or benefits are fully understood.

When researching your retirement options, an in-depth knowledge of current legislation – including subsequent tax treatment – is necessary in order to get the most from your hard-earned money. That’s why Prestige Wealth Solutions works with leading UK tax specialists and technical experts. If you would like to find out more, please contact me today: Alex Herbert, Regional Managing Partner, a.herbert@pws-intl.com