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‘IHT rules will force pension holders back into annuities’

HM Revenue & Customs’ proposals for how inheritance tax will apply after A-Day will effectively force people back into annuities just months after removing the obligation to buy them, claims Standard Life marketing manager John Lawson.

Individuals opting for alternative secured pensions or drawdown look set to trigger IHT bills on their remaining funds on death aged over 75.

The proposals have been anticipated since Paymaster General Dawn Primarolo’s March announcement. Consultation closes on September 30.

Lawson says it is harsh that this tax grab is likely to even apply between spouses.

He says: “This rule essent- ially forces people to buy an annuity because the tax treatment of annuities will be preferable. It is extreme because if you are drawing the maximum 70 per cent income, you are not depriving your estate.”

However, it could take test cases to figure out how asp- ects of the IHT proposals will apply in practice, according to Scottish Equitable pen- sion development manager Rachel Vahey.

Vahey says: “Individuals in drawdown will have to prove they are not trying to pass on wealth and test cases are very likely because of the subjective nature of the rules.”

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