Removal of the 55% tax charge on death

In the 2014 Budget the Treasury announced wide scale changes to increase the flexibility of how people can access their pensions. These changes included for example, increasing the maximum income drawdown limit that can be taken each year from 120% to 150% of GAD rates and removing the requirement that members of registered pension schemes must secure an income by the age of 75, usually by buying an annuity.

More recently, at the Conservative Party conference, the Chancellor announced further changes including the removal of the 55% tax charge on death which is currently triggered when an individual’s defined contribution pension is transferred post-death to a beneficiary, either, as a lump sum and where the pension is already in draw-down, or, if the individual died over the age of 75 and the defined benefit contribution pension scheme is uncrystallised i.e. untouched.

The highlights of these recent changes, which are due to apply to all payments from April 2015, are:

  • Individuals who die below the age of 75 can transfer their remaining defined contribution pension, whether in a drawdown account or untouched, to anyone tax free.
  • Individuals who die over the age of 75 can transfer their defined contribution pension to any beneficiary who will be able to draw down on it at their marginal rate of tax. (Beneficiaries will also have the option of receiving a lump sum payment subject to tax at 45%, although the Treasury intends to change the flat rate 45% to the individual’s marginal from 6 April 2016.)

Furthermore, if an individual dies before April 2015, and the nominated beneficiaries choose not to receive any benefits from the defined contribution pension scheme until April 2015, the above changes will still apply.

These changes, together with previously announced changes to the way in which pension funds can now be accessed, may present significant planning opportunities which can be incorporated into both your retirement and estate planning strategies.

As ever the devil is in the detail but our Private Client team can provide support and advice on these and other , please call (freephone) 0800 298 3899 or email: ppellegrini@dains.com to discuss how these changes may impact on your personal tax planning.