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Osborne continues pensions revamp

The chancellor believes pensions can become a new savings mechanism 

30 September 2014

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The chancellor George Osborne has announced plans to abolish the 55 per cent inheritance tax applied to pensions, in the latest round of his pensions revamp.

Effective from April 2015, all pensions, whether in drawdown or not, can be inherited completely tax-free if the policy holder was up to the age of 75 at the time of death, and those inheriting pensions from someone who has died after the age of 75 will only have to pay income tax.

Previously anyone inheriting a pension from someone who died under the age of 75 was forced to pay the 55 per cent tax unless they were a spouse or a child under the age of 23, and an inheritance from someone over the age of 75 would have always triggered the tax except for a spouse.

The chancellor said: "This is for everyone who works hard and saves hard for their retirement. There are people with pension pots of 20, 30, and £40,000 who currently pay a 55 per cent tax if they try and pass on any unused part of that pension to their children and grandchildren and others, and I'm getting rid of that tax altogether.

"I'm saying if you've worked hard and you've saved hard, it is your money and you should be able to decide what you want to do with it after you die. It is a big boost for savings, it's a big boost for aspiration, and it's on the side of people doing the right thing for themselves and their family."

Responding to suggestions that the tax cut may act as a means of avoiding inheritance tax, Osborne clarified that the lifetime pension fund limit is £1.25m.

This is still considerably more than the current £325,000 threshold which triggers the 40 per cent inheritance tax.

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Family Tax & Wealth structuring