Latest Public Sector News

29.09.14

Osborne to scrap pension ‘death tax’

The Chancellor George Osborne is to scrap the 55% ‘death tax’ applied to defined contribution pension pots left by those aged 75 or over when they pass away. 

This will be at the heart of his message during the Conservative Conference in Birmingham, where he will try to calm the nerves of delegates following the defection of MP Mark Reckless to UKIP and the resignation of Brooks Newmark at the weekend

Currently, pension pots are taxed at 55% when someone aged 75 or over dies. But they are taxed at the marginal rate in the case of those who die aged under 75. 

Osborne’s announcement will mean that from April 2015 when someone older than 75 dies, their relations will have to pay income tax at only the marginal rate – normally 20%. But no tax will apply to the relations of people who die aged under 75. 

It is expected that the proposal will save people thousands of pounds that they would otherwise have lost as tax. In what will be seen as a pitch to the “grey vote” before the general election next May, Osborne will say: “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.” 

Ros Altmann, a pensions campaigner and former government adviser, said the changes will be another nail in the coffin for annuities. 

She said: “Any money that has been used to buy an annuity cannot normally be passed on to the next generation (unless there is a guarantee attached) whereas funds in drawdown can pass on free of tax in future.” 

But Chris Leslie, Labour’s shadow chief secretary to the Treasury, said: “George Osborne claims he has fixed the economy, but he’s only fixed it for a privileged few.” 

Katja Hall, from the Confederation of British Industry, stated that the change makes sense as it will encourage people to save more, with greater flexibility, for their retirement. 

(Image: c. Isabel Infantes/EMPICS Entertainment) 

Tell us what you think – have your say below or email opinion@publicsectorexecutive.com

Comments

Max Garth   29/09/2014 at 17:43

Every little helps well done George. You have done a great job so far keep it up.

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