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Death benefit pension taxes in line for massive cut
| Published: | 24 Jun at 6 PM |
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A little-noted comment made by the British Chancellor in his March budget speech concerned the present unacceptably high rate of taxes on unused pension funds charged on the death of a saver.
At present, families must pay a 55 per cent tax on the remnant of pension funds left after the saver has died. Following his concerns, George Osborne has now published a consultation paper and is requesting comments about a proposed shake-up resulting in a reduction in the tax percentage.
Both on- and offshore pension companies are expecting a reduction to around 40 per cent, in line with the present rate of inheritance tax. This would mean that families of those with small estates would avoid inheritance tax provided the deceased’s total estate including their remaining pension pot totalled under £325,000.
Main pension triggers for the 55 per cent tax at present are twofold. If the deceased was under the age of 75, the tax is due on any benefits taken from the fund and, if the deceased is over 75 years old, the 55 per cent tax charge is due on the remainder of the pension fund.
Offshore pension experts are concerned that, should the rate be reduced to 40 per cent, the tax-efficiency of moving an onshore pension to a QNUPS will be eroded. QNUPS, Qualifying Non-UK Pension Schemes, include an exemption from inheritance tax, although this is expected to be removed after another consultation report is given.
A further consultation about trusts is also in the pipeline after concern over the present rules which allow a number of trusts per saver, each having an inheritance tax threshold of £350,000. New proposals are suggesting that the total of all trusts held should not exceed the inheritance tax threshold.
At present, families must pay a 55 per cent tax on the remnant of pension funds left after the saver has died. Following his concerns, George Osborne has now published a consultation paper and is requesting comments about a proposed shake-up resulting in a reduction in the tax percentage.
Both on- and offshore pension companies are expecting a reduction to around 40 per cent, in line with the present rate of inheritance tax. This would mean that families of those with small estates would avoid inheritance tax provided the deceased’s total estate including their remaining pension pot totalled under £325,000.
Main pension triggers for the 55 per cent tax at present are twofold. If the deceased was under the age of 75, the tax is due on any benefits taken from the fund and, if the deceased is over 75 years old, the 55 per cent tax charge is due on the remainder of the pension fund.
Offshore pension experts are concerned that, should the rate be reduced to 40 per cent, the tax-efficiency of moving an onshore pension to a QNUPS will be eroded. QNUPS, Qualifying Non-UK Pension Schemes, include an exemption from inheritance tax, although this is expected to be removed after another consultation report is given.
A further consultation about trusts is also in the pipeline after concern over the present rules which allow a number of trusts per saver, each having an inheritance tax threshold of £350,000. New proposals are suggesting that the total of all trusts held should not exceed the inheritance tax threshold.
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