Chancellor plans to abolish 55% pension ‘death tax’

The Conservative Party and chancellor George Osborne will scrap the 55% tax rate to which pension savings are subject on the death of a scheme member and introduce a new rate of around 20% to allow employees to leave more money to their children.

The change will be introduced in April 2015.

George Osborne

The chancellor is expected to officially announce the dramatic move around midday today.

He is expected to say: “People who have worked and saved all their lives will be able to pass on their hard-earned pensions to their families tax-free. The children and grandchildren and others who benefit will get the same tax treatment on this income as on any other, but only when they choose to draw it down.”

Osborne has already abolished rules that forced most Britons to use their defined contribution pension savings to buy an annuity. 

Mark Wood, chief executive officer of JLT Employee Benefits, said: “Today’s announcement from the chancellor that the 55% on pension pots on death will be abolished is a very positive move.

”First and foremost, it is fundamentally fair in that a greater proportion of an individual’s wealth can be passed on to beneficiaries, avoiding what is effectively an extension of inheritance tax at a higher rate. The move should encourage people to save for their retirement, cementing as it does the idea that retirement funds remain ’my money’.”