Pensions: Taxation

House of Lords written question – answered on 16th December 2014.

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Photo of Lord Beecham Lord Beecham Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Justice)

To ask Her Majesty’s Government what is the estimated annual cost to the Exchequer of the proposals to dispense with the 55 per cent charge or inheritance tax on lump sums derived from drawdown or other pensions.

Photo of Lord Deighton Lord Deighton The Commercial Secretary to the Treasury

This government believes that people who work hard and save all their lives should be able to pass on their pension pot to the next generation.

From April 2015, individuals will be able to pass on their unused defined contribution pension savings to any nominated beneficiary when they die, instead of paying the 55 per cent charge which currently applies. If the individual dies before age 75, the beneficiary will pay no tax on the funds. If they die after age 75, the beneficiary will pay their marginal rate of Income Tax, or 45 per cent if the funds are taken as a lump sum payment. From April 2016, lump sum payments will also be taxed at the recipient’s marginal rate. Additionally, from April 2015, any future payments from joint life and guaranteed term annuities will be tax free for beneficiaries of any individuals who die under the age of 75.

The forecast Exchequer cost of these changes is £50 million in 2015-16 rising to £185 million in 2019-20. This has been published on page 46 of the ‘Autumn Statement 2014 policy costings’ document with the relevant table copied below:

Exchequer impact (£m)
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20
Defined Benefit Transfers 0 +95 +180 +255 +325 +295
Reduced Annual Allowance and Small Pots Rules 0 +15 -50 -115 -120 -120
Death Benefits and Joint Life Guaranteed Annuities 0 -50 -155 -165 -175 -185
Total 0 +60 -25 -25 +30 -10

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