The death rate of Inheritance Tax (IHT) as been set at 40% for many years. Whilst this would appear to be a relatively high rate of tax it is not the highest rate that can apply when funds pass on death. Higher charges of up to 55% can apply to the funds in certain pensions.
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The 55% rate of tax is something which is often overlooked by those who are holding significant pension funds
The Daily Telegraph reports this week that more than 400,000 people have pensions which are in ‘drawdown’ which enables them to draw an annual income from their pensions without having to purchase annuities. However, on the death of the pensioner any undrawn funds are then taxed at what is widely regarded as a punitive rate of 55%.
The Daily Telegraph are reporting that they understand that the Chancellor is likely, in his Autumn Statement later in the year, to announce that as part of the package of reforms to pensions generally that were announced in the Budget earlier this year, that this 55% rate will be reduced. They predict that it may fall to 40%. This would then put the tax on those pension funds in line with the rate of Inheritance Tax.
This is obviously speculation at this stage and we will have to await the announcement in the Autumn Statement.
The 55% rate of tax is something which is often overlooked by those who are holding significant pension funds and is something that ought to be considered as part of the planning around preparing a Will and Inheritance Tax planning generally.
Ian Newcombe is a partner in the private client team of Stephens Scown based at their Exeter office. There are offices in Exeter, St Austell and Truro.
Ian Newcombe is a partner and head of the private client team at Stephens Scown LLP in Exeter, which was named Private Client and Family Law Team of the year at the British Legal Awards 2013. To contact Ian for further advice, please call 01392 210700 or email solicitors@stephens-scown.co.uk