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55% tax on inherited pension pots to be abolished

The Chancellor, George Osborne, has announced at the Conservative Party conference that from April 2015, the 55% tax that is payable on pension pots upon death will be abolished in some cases.

Last updated on September 3rd, 2015 at 02:55 pm

Currently tax is payable at 55% on any unused drawdown pension funds that are passed on at death, unless the deceased is under 75 and the pension pot has not been touched. After 75 tax is payable whether the fund has been touched or not. Only spouses and dependent children under 23 can inherit the pension fund tax free currently. However, from April 2015 anyone will be able to inherit the pension pot tax free if the deceased is under 75, and if they are over 75, the beneficiary will pay tax at their own prevailing tax rate – which could be as low as 20%.

Head of GWE’s wills and probate department, David Coffey says “As pension pots are not subject to inheritance tax (IHT), this move could lead to people pumping money into them to keep their other assets below the nil rate IHT band (currently £325,000 on estates belonging to individuals and £650,000 for married couples) as it could prove an effective way of planning for their families’ future. This is one of several changes that the government has made to the way people can use their pensions. We will watch developments here carefully and report in future on any further changes.”

For expert advice on any issue relating to wills, probate, inheritance or elderly client services, please contact our team now.

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