The Chancellor has made further changes in the Autumn Statement to improve the attractiveness of pensions. The 2014 budget proposals for pensions were already far reaching and will change the pensions’ landscape. The new rules increase the importance of pensions in Inheritance Tax Planning. The changes are all due to take effect from 6th April 2015. The two main changes from the Budget are:-
The first change will allow all members of Money Purchase Pensions to take money from their pension fund as often as they would like without any restriction on the amount. This passes control of the plan to the member giving them responsibility for their pension fund. Any withdrawal taken from the fund will potentially be taxed at the member’s marginal rate allowing the individual to take control of their own pension fund. However 25% of the fund may still be taken as a tax free lump sum.
The second change relates to the death benefits. On death before age 75 there will be no tax charge if the benefits are paid as a lump sum. If an income is taken from the pension fund it will be tax free.
The pension fund can now be left to a beneficiary rather than a dependent.
On death after age 75 the fund can remain in existence for the benefit of the beneficiary without any tax charge on the fund. Any income taken by the beneficiary will be taxed at their marginal rate.
The proposals now make it possible for the beneficiary to leave any remaining funds in the pension to their nominated beneficiaries which becomes very attractive. This can carry on as long as there are funds remaining in the pension fund.
More details are expected from HMRC and the Treasury in the near future.