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Should Inheritance Tax And Income Tax Be Paid On Pensions On Death?

My view on potential reforms ...

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Posted by Helen Beaumont on 11/01/2023 @ 8:00AM

When someone dies, pension pots should be included in the value of their estate for the purposes of inheritance tax, according to a recent report from the Institute for Fiscal Studies ...

There are many attractions to saving into a pension, though it should be about helping an individual to enjoy a comfortable retirement!

There are many attractions to saving into a pension, though it should be about helping an individual to enjoy a comfortable retirement!

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The tax system currently treats funds that remain in a pension at death extremely favourably, with income tax relief given when the money is paid into the pension, no income tax when the money is taken out, and no inheritance tax when funds remain in a pension at death.

In their report called 'Death and Taxes and Pensions', The IFS believes that subjecting pensions to inheritance tax would raise 'substantial' revenue for the Government over time and remove the 'perverse incentive' to avoid using a pension to fund retirement.

It also suggested that 80% of the funds held in pension pots should be counted for inheritance tax purposes if the funds are to be subsequently subject to income tax!

There are many attractions to saving into a pension, though it should be about helping an individual to enjoy a comfortable retirement rather than as a tax-efficient way of passing money from one generation to another.

I do caution that changing the rules may have some unintended consequences, specifically by pushing people to take their tax-free lump sum earlier than they would normally do which would reduce the overall amount they have available for retirement.

Potential reforms to the treatment of pensions at death could definitely incentivise people to use their pensions to provide a secure lifetime income.

Until next time ...



HELEN BEAUMONT

 
 


Would you like to know more?

If anything I've written in this blog post resonates with you and you'd like to discover more about your pension and using it to fund your retirement, it may be a great idea to give me a call on 01908 774323 and let's see how I can help you.

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About Helen Beaumont ...

 

Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.

Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.

When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.