Families will soon be able to hand their pension pots down hand-free for multiple generations, the Government have announced.
Chancellor George Osborne has already said that the 55 per cent on pension pots bequeathed directly to children will be scrapped. It means that if a pension-holder dies before age 75, there will be no tax. If they are over 75, beneficiaries will only pay income tax as they withdraw cash.
But until now, this tax advantage only applied for one generation, after which any leftover cash was subject to the ruinous 55 per cent ‘death tax’.
Tom McPhall, of pension providers Hargreaves Lansdown, said: ‘This creates the potential for a parallel inheritance-planning universe running alongside any other family wealth outside the inheritance tax system.’
A draft clause added to the Taxation of Pensions Bill says funds could be passed on to any ‘nominee’ and, crucially, this person could then nominate a successor who would also enjoy the tax break.
Andrew Tully, of pensions firm MGM Advantage, said: ‘Passing money on within the pensions wrapper is likely to be a very tax-efficient way of leaving wealth to younger generations.’
Currently, only spouses and children under 23 are exempt from 55 per cent inheritance tax. They pay their usual income tax rate on cash withdrawals.