20 June 2023
If you are covering the news that HMRC has proposed to change the income tax rules on inheriting pension, please see the following comment from Jon Greer, head of retirement policy at Quilter:
"On face value, it appears quite significant changes to the tax treatment of beneficiary pensions were put forward in a relatively underhanded way under the guise of removing the lifetime allowance from April 2024. A single sentence at the end of a policy statement appears a rather odd way to announce a sea change in such a material aspect of the pensions tax regime.
"It begs the question of whether the publication of this alongside the legislation was even intentional or whether it was a result of huge time constraints to release information by Legislation-day (L-day). Regardless, this is something that needs clarification sooner rather than later.
"It would be odd for this to be how government chooses to announce such a big change, especially with a general election looming; it’s hardly a vote winner - quite the opposite you would have thought. There is no doubt that HMRC has been under pressure to get information out, but this is not actually a written policy of the Treasury or based on anything formally announced so it feels premature.
"On the face of it the changes put forward would subject many more people to taxation impacting beneficiaries of members who die pre age 75 who left uncrystallised (unused) funds in their DC pension pot. Currently such beneficiaries can choose to receive an income either by designating to drawdown or purchasing a beneficiary annuity and receive that income tax free.
"If the announcement was intended, the Government want those beneficiaries to pay marginal rate tax from next tax year. This will impact any beneficiary who chooses beneficiary drawdown or annuity regardless of the size of the pension fund the member had accrued during their lifetime. It’s a sea change in tax treatment and could have a large political impact ahead of an election one would have thought."
