Chancellor abolishes 55% ‘death tax’
In his speech to the Conservative party conference, Chancellor George Osborne announced that the current 55% tax on defined contribution pension funds passed on at death will be abolished.
From April 2015, individuals with a drawdown arrangement or with uncrystallised funds will be able to nominate a beneficiary to pass their pension to when they die. If the individual dies before they reach the age of 75, the beneficiary will pay no tax, whether it is taken as a lump sum or as drawdown. If the individual dies after age 75, tax will be at the beneficiary’s marginal rate, or at 45% if it is taken as a lump sum. From 2016-17, the Government also intends to replace the 45% with the beneficiary’s marginal rate.
Currently, if the individual is under 75 and has uncrystallised funds, there is no tax payable (subject to the lifetime allowance). After age 75 or once benefits have started to be taken, an individual’s spouse or dependant can receive a pension or drawdown, taxed at their marginal rate, but any other beneficiary (apart from a charity) is taxed at 55%.
The policy is expected to cost around £150 million per annum. Mr Osborne said: “People who have worked and saved all their lives will be able to pass on their hard-earned pensions to their families tax free. The children and grandchildren and others who benefit will get the same tax treatment on this income as on any other, but only when they choose to draw it down.”
PPF levy proposals to go ahead
The Pension Protection Fund (PPF) has announced that its proposals for the 2015/16 levy (see the June 2014 issue of Update) are to go ahead largely as planned. The PPF has also set the levy estimate for 2015/16 at £635m, nearly 10% lower than the 2014/15 estimate (although this reduction is not due to the new rules – it is the same amount the PPF would have expected to collect if it had made no changes).
Changes that have been made since the consultation include:
• Reducing ‘scorecard arbitrage’ by limiting the ‘consolidated’ scorecard to genuinely large or complex companies. However, companies filing abbreviated accounts at Companies House will be able to voluntarily share full accounts with Experian;
• Mortgages that are not relevant to insolvency risk will be excluded;
• Asset backed contributions involving assets other than UK property will be recognised, although only to the extent they are worth in the event of insolvency.
Trustees and employers are urged to check their data and scores at www.ppfscore.co.uk before they start to be used from 31 October 2014.
Auto-enrolment research published
Research published by the Pensions Regulator shows that 20% of small and almost half of micro employers do not know their staging date for automatic enrolment. This is despite other data released by NEST suggesting that the majority of these employers support the idea of workers having access to a workplace pension. www.thepensionsregulator.gov.uk/docs/employer-automatic-enrolment-research-spring-2014.pdf
The Wedgwood Collection of art, ceramics and paintings has been saved by public donations. The collection faced being broken up to meet the deficit in the Waterford Wedgwood pension scheme, which arose when the rest of the employers in the scheme went into administration in 2009. The museum remained solvent and became the “last man standing”.
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