Tax on inherited pensions is to be scrapped from April 2015, but what does this mean?

The Director of Plus Accounting, Peter Hedgethorne, gives his view on the annoucement that tax on inherited pensions will be scrapped from April 2015.

The Chancellor announced last week that he will scrap ‘tax on inherited pensions’ from April 2015 – what does that actually mean for most people?

The main problem with pensions is that people are not saving enough to fund a comfortable retirement. This proposal will provide comfort to those thinking about making contributions to a pension scheme who might otherwise be worried about a large tax bill if they were to die before spending the fund.

So it is going to be welcomed mostly by those who have more than enough savings to fund their retirement and have been worried about paying more tax (55%) on funds which may be left in their pension schemes on death than on funds held outside these schemes (40% inheritance tax).

As John Cridland, DG of the CBI says, ‘the main policy thrust should be to encourage long term savings amongst the not so wealthy’. This proposal may marginally help with that aim, but the only substantial way in which it can be achieved is by ensuring a high ‘take-up’ of employees contributing to schemes under the new ‘auto-enrolment’ pensions arrangement.

Peter can be contacted at peterh@plusaccounting.co.uk.

If you want to contribute to the Chamber blog, contact us on hannah@brightonchamber.co.uk