Pension ‘Death Tax’ to be abolished

As reported on Accounting Web, from 2015/16 the government have announced they plan to abolish the Pension ‘Death Tax’ following on from a consultation that they announced would take place in this year’s budget.

There is currently a 55% tax charge that can apply when a member dies and their pension fund is paid out to someone else but this is set to be withdrawn and replaced with a new set of rules.

The new rules will continue to include a distinction where a member is under 75 when they die. The current and new rules are summarised below. These rules will apply will apply by reference to payments on or after 6 April 2015 and can apply even if a member dies before that date.

Current Rules New Rules
Member under 75:
No drawdown Lump sum:    tax-free Lump sum:    tax-free
(Or can use flexible drawdown, also tax-free)
In drawdown Lump sum:    55% Lump sum:    tax-free
Drawdown:    recipient’s marginal tax rate Drawdown:    tax-free
Member 75 or over:
No drawdown Lump sum:    55% Lump sum:    45% (see note)
Drawdown:    recipient’s marginal tax rate Drawdown:    recipient’s marginal tax rate
In drawdown
Lump sum:    55% Lump sum:    45% (see note)
Drawdown:    recipient’s marginal tax rate Drawdown:    recipient’s marginal tax rate

Note:  The Government will consult on replacing the 45% charge with the recipient’s marginal tax rate from 2016/17

Source: Accounting Web

As a contractor, there are many benefits to having a private pension in place and as specialist contractor accountants, we are also able to put you in contact with financial advisors that specialise in pensions for contractors. To find out about ICS Money, please click here or arrange a callback from one of our team.