Now Treasury ‘plans tax raid on inherited pension pots’ as ability to inherit them tax free could be scrapped by ministers
- The proposals could be in place by next April and see beneficiaries charged tax
- It is an effect of lifetime allowance on tax-free pension contributions scrapping
The ability to inherit a pension pot tax-free could be scrapped by ministers in a move likely to hit tens of thousands of households in the pocket.
It came as official figures showed the Treasury raked in a record amount of inheritance tax last month as rising house prices and freezes on tax thresholds pulled more estates into the net.
Earlier this week, the Government published proposals that from next April could see beneficiaries charged income tax on ongoing withdrawals from pension pots they inherited.
It marks a shift from reforms introduced in 2015 by the then-Chancellor George Osborne.
These allowed anyone inheriting a defined contribution pension pot from someone aged under 75 to benefit from a tax-free lump sum and make regular withdrawals while keeping the cash invested.
The ability to inherit a pension pot tax-free could be scrapped by ministers in a move likely to hit tens of thousands of households in the pocket
The latest move by the Treasury is a knock-on effect from a decision in April to scrap the lifetime allowance on tax-free pension contributions.
Chancellor Jeremy Hunt got rid of the allowance to discourage early retirement, particularly among NHS doctors, to help ease the UK’s growing labour shortage.
But officials now seem set to try to claw back tax revenues lost from the LTA removal through the new proposals.
Former pensions minister Steve Webb warned the overhaul was ‘a big change’ that meant while people would continue to pay no inheritance tax on a pension pot, they would be required to withdraw the entire amount to keep their income tax benefits rather than keeping the cash tied up in investments and make withdrawals.
‘It would be totally unacceptable to make such a big change ‘through the back door’,’ Webb told the Financial Times. ‘If ministers plan to remove this pension tax break they should announce their plans publicly and have them properly debated.’ But a Treasury source said the plans were ‘not a done deal’ and were merely ‘one suggested approach’ on how to tax lump sums following the end of the LTA.
A government spokesman said: ‘We want to keep 15,000 experienced people in work to help grow our economy and clear backlogs, such as seniors in the NHS who had told us that pensions tax was disincentivising them from working.’
Chancellor Jeremy Hunt got rid of the allowance to discourage early retirement, particularly among NHS doctors, to help ease the UK’s growing labour shortage
He added: ‘We look forward to working with pension experts over the coming weeks to help us craft the legislation which will ensure that our historical pensions tax cut delivers the right results for savers and the economy.’
Fears of a new raid on pensions came as data showed the Treasury had raked in a record £795million in inheritance tax receipts last month, taking the total for the first three months of the current tax year to £2 billion, £0.2billion more than last year. The bumper take also means that for the whole year, the Treasury could pocket over £7.9billion from death taxes, above prior estimates of £7.2 billion.
Experts also noted that the booming tax take may make ministers pause rumoured plans to scrap inheritance tax altogether. ‘The HMRC tax and national insurance receipts illustrate a growing tax take that the government may be reluctant to forgo,’ said Shaun Moore, of wealth management firm Quilter.
Source: Read Full Article