Widowers will not have to pay income tax when they start taking annuity payments after their partner dies, Chancellor George Osborne has confirmed.
Delivering his Autumn Statement, Osborne says: “The 55 per cent death tax currently applies when you pass on an unused pension pot to loved ones will be abolished. People will be able to pass on their pensions to their loved ones tax-free.
“I can also tell the House today that we will ensure that people who die before the age of 75 with a joint life or guaranteed term annuity will be able to pass that on tax-free too.”
The Autumn Statement text confirms the tax cut only applies to annuity payments taken after April 2015.
At September’s Tory party conference the Chancellor announced pensions held in drawdown accounts and some type of annuity would be exempt from the pensions “death tax” if the member dies before the age of 75.
If the member dies after 75, the remaining pension is taxed at the beneficiary’s marginal rate of income tax or 45 per cent if taken as a lump sum.
But conventional annuities were not included in the original announcement, leading commentators to argue the Government was favouring drawdown over annuities through tax treatment.
Today’s announcement brings the retirement products back into line.