020 7189 9999
Opening hours
Mon - Fri: 7.45am to 6pm (Thurs 8pm)
Sat: 9.30am - 1.30pm
Request a call back
  • Home
  • News
  • Government to abolish 55% pensions death tax

Government to abolish 55% pensions death tax

Government to abolish 55% pensions death tax

Death benefits from personal pensions are a subject that our clients talk to us about often so we were listening with great interest when the Chancellor announced in his conference speech that the current 55% tax on death in drawdown will be reformed.

This is the final piece of his Pension Reform jigsaw: and it is potentially the most significant change of all.

Currently if you die in drawdown a dependant continues to enjoy the right to income but other beneficiaries are subject to tax on the fund at 55%.

The reported changes are as follows:

  • When the deceased person is 75 or over, beneficiaries will only have to pay their marginal income tax rate, and only when they take money out of the pension. There will be no restrictions on how much of the fund can be withdrawn at any one time. However if the pension is received as a lump sum it will be subject to a tax rate of 45%. We are unclear what might constitute a lump sum payment.
  • When the deceased person is under age 75 – The defined contribution pension can be passed to anyone as a lump sum tax free. It does not matter if the pension is in drawdown or not (a material change). The person receiving the pension will pay no tax on the money they withdraw whether it is taken as a lump sum or accessed through drawdown.

It must be stressed that the only information we have is a press release from HM Treasury which leaves many questions left unanswered. In some respects the news is “too good to be true” and we await the detail of the legislation.

The announcement could impact the estates of those who have recently died if benefits of the pension fund are not distributed until after 6 April (there is a two year window to allocate death benefits), so executors should be aware of the proposed reforms.

The news is also another nail in the coffin of annuities and if you are on the cusp of buying an annuity it could be advantageous to reassess your decision.

Our view is that we just do not have enough information to provide any guidance at the moment.

We will be assessing further announcements as they arrive.

The value of your investment can go down as well as up, and you can get back less than you originally invested.

The Bestinvest Online Investment Service, including any account analysis and investment reports provided by our guidance services, is an online execution-only dealing service for investors who want to make their own investment decisions. It does not provide advice on the suitability of products and investments; if you are unsure about the suitability of any investment you should seek professional advice. Clients of our Investment Advisory Service and Managed Portfolio Service can use the website to obtain current valuations of their investments but cannot trade on these accounts online and should call their adviser if they wish to discuss changes to their investments.

Past performance or any yields quoted should not be considered reliable indicators of future returns. Restricted advice can be provided as part of other services offered by Bestinvest, upon request and on a fee basis. Before investing in funds please check the specific risk factors on the key features document or refer to our risk warning notice as some funds can be high risk or complex; they may also have risks relating to the geographical area, industry sector and/or underlying assets in which they invest. Prevailing tax rates and relief are dependent on your individual circumstances and are subject to change.

Issued by Bestinvest (Brokers) Limited (Reg. No. 2830297), which is authorised and regulated by the Financial Conduct Authority. Financial services are provided by Bestinvest (Brokers) Limited and other companies in the Tilney Bestinvest Group, further details of which are available here. This site is for UK investors only.
© Tilney Bestinvest Group Ltd 2016.

Version: RC1027.44113