Plan to scrap inherited pensions tax benefits
The rule that allows people to leave a tax-free retirement pot when they die is under threat from a Treasury shake-up.
The proposals would end the benefit for tens of thousands of UK households and follow April’s scrapping of the lifetime allowance (LTA) on tax-free pension contributions.
At present, under reforms introduced in 2015, anyone inheriting a defined contribution pension pot from a person who died under the age of 75 is able to benefit from a tax-free lump sum and make regular withdrawals, while keeping funds invested.
The Treasury has now published a consultation document looking at making changes that would mean that from April 2024 beneficiaries would be charged income tax on ongoing withdrawals from inherited pots.
It says that the proposals outline only one possible approach, while pension experts are calling for a proper debate before any move is made to remove the benefit.
In his March Budget chancellor Jeremy Hunt announced plans to increase the pensions’ annual tax-free allowance from £40,000 to £60,000 along with abolishing LTA – previously set at £1.07m.
The measure was aimed at discouraging early retirement by enabling people who had crossed the threshold to continue saving into their pensions tax free.
Mr Hunt said that move would incentivise “our most experienced and productive workers to stay in work for longer”.
Meanwhile, Inheritance tax (IHT) receipts in June hit a record high. Official figures show that the Treasury collected £795million, making it the highest monthly total on record
IHT receipts for April to June 2023 were £2billion, which is £0.2bn higher than the same period a year earlier. Industry experts are also predicting a record-breaking year.
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