A welcome move for those who wish to pass on their wealth to loved ones when they die.
The Chancellor may not have scrapped Inheritance Tax in his Autumn Budget Statement as had been widely speculated about, but in a significant development, he has given an early Christmas present for all those who want to leave as much of their assets as possible to their loved ones.
The UK government has chosen to abandon its earlier plans to impose taxes on pension funds that are passed down to family members by individuals who pass away before the age of 75. The decision, confirmed in the Autumn Statement, brings relief to many beneficiaries and pension holders alike, as it ensures that income withdrawals received by beneficiaries in such cases will not be subject to taxation.
Background: Earlier Taxation Plans
Initially, HMRC had announced plans in the summer to tax inherited pensions for those who died before reaching the age of 75. This would have affected individuals who left behind uncrystallised pension funds, intending to provide their beneficiaries with pensions through drawdown or annuity options, making them taxable.
Current Taxation Rules
Under the existing regulations, beneficiaries can inherit defined contribution pensions tax-free if the pension amount falls within the individual's lifetime allowance, provided they pass away before the age of 75.
This exemption has now been confirmed to remain in place, safeguarding the tax-free status of these pensions, effective from April 2024.
Colin Barrett-Treen is a Director & Principal Estate Planner at Peritum Wills.
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