The Government has confirmed reforms to “death tax” rules will allow savers to pass pension wealth down through generations of people indefinitely.
Amendments to the Taxation of Pensions Bill published today confirm savings can be passed down through “successors”. There had been concerns the Government could legislate so that on the “second death”, a beneficiary might have to cash out the pension and be taxed at 55 per cent.
But MGM Advantage pensions technical director Andrew Tully says the changes published today mean a member will be able to pass their drawdown fund onto a nominee, who in turn can leave unspent pensions to successors.
A successor can be nominated by a dependent of the member, a nominee of the member, a successor of the member, or by the scheme administrator.
Tully says: “That successor can then pass onto another successor, and so on and so on. So we have a cascading of wealth down through the generations in a very tax efficient way. It’s a bonus for people who are wealthy and have lots of pension savings.”
However, the amendments do not mention how annuities will be treated under the new system. Following the announcement of the changes to the death tax in September, Money Marketing revealed that value-protected annuities would benefit from the tax cut in the same way as savings held in drawdown arrangements.
At the Conservative Party conference Chancellor George Osborne announced the 55 per cent charge levied on defined contribution pension pots would be removed if the saver dies before the age of 75. After that age, savings will be taxed at the marginal rate of the dependent if taken as income, or taxed at 45 per cent if withdrawn as a lump sum.