Further good news in
relation to the above was confirmed in the recent Government’s response to the “Freedom
of choice in pensions” consultation following the 2014 Budget.
To give a little
background, at present when people utilising pension drawdown (or those who are
over 75, not in drawdown but have “uncrystallised” pensions) die, the residual
“pot” is taxed at 55% - the only exception being when the fund is used to
purchase an annuity for the spouse or the spouse carries on with income
drawdown.
In their response to
the consultation, unsurprisingly, the Treasury has acknowledged that a rate of
55% might be “too high” and “needs to be changed”. This mirrors something
that financial planners have felt since the rate was raised from the previous
tax of 35%. Interestingly, however, as this is a relatively complex and
sensitive area, confirmation of the rate is not due until the Autumn statement,
and will not take effect until 2015.
Perhaps more
interesting is the speculation within the industry (and within the adviser
group at BROADSTONE) of what the new rate will be. We haven’t got to the
point of running a sweepstake, but popular opinions in the office include a
parity with Inheritance Tax (40%), perhaps charging the pension fund to the
individual pension holder’s marginal income tax rates or a return to the days
of 35%. The outlier is speculation that perhaps the Government will look
to allowing wealth to truly span the generations, and maybe allow family
members to effectively inherit the pension fund into their own pensions.
It will be fascinating to see the final
detail of this in the Autumn statement (and see which of the office predictions
were right). One thing that everyone will be pleased about is that from
next year 55% tax will no longer apply.
Duncan Wilson
Private Client Partner
Telephone: +44 (0)20
7893 3456
Email: getintouch [@] broadstoneltd.co.uk
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