The latest amendment to the Taxation of Pensions Bill means that – if the policyholder dies before the age of 75 – the inheritor will no longer be liable to pay ‘death tax’ and other inheritance taxes upon receipt of the pension.
However, if the pension holder dies over the age of 75 then they will have to pay tax at their marginal rate, as they would with any pension.
The beneficiary must also have sufficient lifetime allowance available in order to receive the pension on a tax free basis.
“Yet another boost”
Old Mutual Wealth said this change demonstrates “yet another boost for pension savers in the UK”.
Adrian Walker, retirement planning expert at Old Mutual Wealth, said the company welcomes the amendments, but highlights the importance of inheritors seeking financial advice.
He said: “Each new ‘successor’ is likely to require some assistance in making the most tax-efficient use of their funds, perhaps with one eye on being able to pass even more on to their own successor, so the potential for advisers to deliver true inter-generational services will be greater than ever.”
The objective of the new legislation, included within HM Revenue & Customs’ (HMRC) official document, has said it aims to “make the tax system fairer by ensuring people have more choice about how they access their money purchase pension savings.
“They also make changes to prevent this new flexibility being exploited by individuals to gain a tax advantage.”
The reforms, which will remove the need for retirees to purchase an income stream, shocked the UK finance industry when they were announced by Chancellor George Osborne in March.
