Pension legislation is set to change in April 2015; people will have the freedom to take as much pension income, taxed at their marginal rate, as they wish.
The Government, last week, announced they will abolish the pension’s death tax charge.
What are the current rules?
If a person were to die before age 75, their defined contribution (DC) pension can be passed on tax-free to their beneficiaries as long as they have not drawn any money from it. If they have, the residual pension will be taxed at 55% before it is passed on.
If over 75, whether in drawdown or not, the pension will be taxed at 55% unless passed to a spouse or dependant under the age of 23.
What will change?
Under the age of 75, the pension will be passed on tax-free, whether untouched or in drawdown.
The person receiving the pension will pay no tax on the money they withdraw from that pension, whether it is taken as a single lump sum, or accessed through drawdown.
If over 75, their pension will be passed on to a beneficiary who will be able to drawdown the inherited pension at their own marginal rate of income tax. Beneficiaries will also have the option of receiving the pension as a lump sum payment, subject to a tax charge of 45%.
If you have any queries about your retirement & Estate planning, please call us on 01932 830664 to arrange an initial meeting, held at our cost, with one of our qualified Financial Advisers at Ward Williams Financial Services Ltd.
Source: HM Treasury, gov.uk website, 29 September 2014