DNS-Accountants

Abolition of 55% "Death Tax" on Pensions

Abolition of 55% "Death Tax" on Pensions

Chancellor George Osborne announced at the Conservative Party conference in Birmingham that he will abolish the 55% tax currently payable on pension funds passed on after death.

This announcement is the latest of a number of reforms to overhaul the pensions system, which strikes another blow to annuities, and will take effect from April 2015.

Death tax on pensions

What are the current rules?

Under current rules, any pension bequeathed to savers’ beneficiaries is subject to tax at 55% in the case of those aged 75 or over, and the marginal rate of around 20% for those who die younger.

What are the changes?

The current 55% tax payable when pension funds are passed on after death is to be axed from 2015. As Mr Osborne said: "People who have worked and saved all their lives will be able to pass on their hard-earned pensions to their families tax free. ... The children and grandchildren and others who benefit will get the same tax treatment on this income as on any other, but only when they choose to draw it down."

To whom does the reform apply?

Retirees who have not started to draw their pension and are still under 75, will be able to pass on money in their pension pot tax-free to their children and grandchildren upon their death. 

Who will benefit?

The families of hundreds of thousands of people: the winners in the policy change will be those who are beneficiaries of a defined pension fund left to them by someone aged under 75 whose pension was already in a drawdown account. Beneficiaries of pension funds left to them by someone aged 75 or over will also now be able to take the funds through drawdown at their marginal tax rate – previously this was only available to dependants.

Who may lose?

There are fears that some retired people may be put off spending any of their pension savings in order that the income can go to their children and grandchildren tax-free. The government will be down on tax revenue to the tune of a total £150 million per annum, which could prompt the Treasury to try to raise the shortfall from elsewhere, maybe through yet more punitive investigative measures.

Any upsides?

This is certainly the abolition of a pension tax, although it only applies from April 2015, and to contributions into pensions made from then. There are also some aspects of this change that won’t come into force until 2016–17, but be assured that we’ll keep you posted about these.

Speak with an expert

Any questions? Schedule a call with one of our experts.

About the author
Blog Author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.

  • Book a free consultation
Receive accounting news and updates in your inbox

About the author
Blog Author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.

DNS-Accountants

See how dns can help
you today.

Save tax
Save tax

Our experts will work with you to reduce your corporation, personal or any other tax liability, all within the rules of the UK tax legislations. We’ll ensure you’re claiming all allowances and expense claims that you would be elegible for.

Reduce your admin
Reduce your admin

We give free software to all of our clients. You’ll be able to raise sales invoices, snap pictures of receipts and be MTD compliant with ease. You can even manage your business anywhere there’s an internet connection, thanks to our mobile app!

Grow your business
Grow your business

Successful business owners are those that are on top of their numbers. Businesses are driven by the numbers behind them. If you’re not reviewing your profit & loss or balance sheet regularly, how would you know how your business has performed and how would you make proper business decisions? We can help you make sense of your numbers.

Free Business Software!

Limited time only!

Free Business Software

Say Goodbye to Bookkeeping Hassles: Nomi offers Free Receipt Processing and big savings!

  • Built in payment solutions.
  • Track profitability, debtors and creditors
  • Snap pics of receipts with the mobile app
  • Free Receipt Processing
  • Hasslefree Bookkeeping
  • Cost Reduction
Get Started
Close nomi