Thousands of UK households will lose the right to inherit pension pots tax-free as the government proposes to scrap this benefit. Introduced by former Chancellor George Osborne in 2015, the scheme allowed pensioners to receive a lump sum from an inherited pension pot from a person under 75.
They were able to make regular withdrawals from the pot while keeping the money invested in the pot. But in a consultation last month, the Treasury announced that pension pots will be taxed on ongoing withdrawals starting next April. This comes after the government axed the lifetime allowance for tax-free pensions, which has been a source of concern for experts and citizens. While the changes would affect untouched pensions, it is unclear what will happen to pots that have already been drawn down at the moment of death.
With over 100,000 UK pensioners aged 55-75 dying in 2020, this has raised questions about the impact of the proposed changes on those covered by inheritance tax, particularly as more estates have entered the regime due to frozen thresholds.
The April changes to the lifetime allowance were designed to discourage early retirement, but they also removed the tax on lump sums and periodic withdrawals, giving higher earners an incentive to continue working above the allowance threshold. The proposals have been met with criticism for their lack of transparency and lack of public consultation.
The Labour party has said that if elected, it will reverse the April changes, but some experts believe that the latest proposals go further than this. For example, all remaining pension funds would be taxed at death, or current income tax rules would be extended, regardless of when a person dies. This could make the pension system simpler and reduce the temptation to use pensions solely to preserve inheritance rather than fund retirement.
Some argue that the changes should be phased in over time to accommodate those who have saved in the current tax regime.
Comments
Post a Comment
Please Leave a comment