Lump sums paid to beneficiaries will be taxed at the recipient’s marginal rate from next year, the Government has confirmed.
Under the changes to the treatment of pensions on death announced at last year’s Autumn Statement, the Government announced pensions in drawdown would be taxed at the beneficiary’s marginal rate if the member died over 75.
However, savings passed on as a lump sum would be taxed at 45 per cent.
Yesterday’s Budget document confirms the 45 per cent will still apply for this year, before changing to be taxed at the marginal rate of the recipient from 2016/17. The change will be included in the Summer Finance Bill 2015.
Pensions in drawdown, or in joint life or value-protected annuities are passed on tax free if the saver dies before the age of 75.
The changes to the pensions ‘death tax’ has been roundly welcomed by advisers and the industry as savers are expected to keep money in pensions for longer as a result.
However, pension provider AJ Bell this week called for the Government to equalise the treatment of adult and child dependants. Under current rules, child beneficiaries must spend down pensions before the age of 23 and risk facing potentially huge tax bills.