Chancellor abolishes 55% tax on pension funds at deathSeptember 30, 2014 // No Comments
People with defined contribution pension savings will no longer have to worry about their pension savings being taxed at 55% on death.
The Chancellor announced on September 29th that from April 2015 individuals will have the freedom to pass on their unused defined contribution pension to any nominated beneficiary when they die, rather than paying the 55% tax charge which currently applies to pensions passed on at death. Around 320,000 people retire each year with defined contribution pension savings; these people will no longer have to worry about their pension savings being taxed at 55% on death.
From next year, individuals with a drawdown arrangement or with uncrystallised pension funds will be able to nominate a beneficiary to pass their pension to if they die. If the individual dies before they reach the age of 75, they will be able to give their remaining defined contribution pension to anyone as a lump sum completely tax free, if it is in a drawdown account or uncrystallised (pension funds/benefits that have not been drawn yet). The person receiving the pension will pay no tax on the money they withdraw from that pension, whether it is taken as a single lump sum, or accessed through drawdown.
This system replaces the current 55% tax charge and has the potential to benefit all those with some form of defined contribution pension savings – that is 12 million people in the UK. Further information is available on the government’s website.