This ‘good news’ for pension savers in SSAS (small self administered schemes), SIPP or in any other Defined Pension Contribution Scheme was announced by the Chancellor, George Osborne, at the Conservative Party Conference on 29 September 2014.
Whether or not a defection to UKIP or the resignation of a Minister accelerated the Chancellors timing, we will never know for sure. What we do know is that the Chancellor had previously announced that he would change the potential 55% lump sum tax charge currently applicable on crystallised drawdown funds remaining on the death of a member, and now he has given details of this proposed change.
What he announced on 29th September 2014 was that from April 2015 the tax treatment on the death of a member will change, with the changes applying to both: “Crystallised” funds (those that are being used to provide drawdown income), and “Uncrystallised” funds (those that have not been designated to provide drawdown income), for death before and after the age of 75.
The changes for Death before Age 75
– Current Treatment
Uncrystallised funds, up to the Lifetime Allowance are available tax free as a lump sum.
Crystallised funds are used to provide a dependant’s pension subject to tax under PAYE
As a lump sum, after 55% tax deduction
– New Rules, Post April 2015
- Irrespective of whether funds are crystallised or not, all funds remaining, on death before age 75 can be paid as a lump sum, completely free of tax.
- The recipient(s) of the fund will pay no tax – whether monies are taken as a lump sum or as an income.
The changes for Death after Age 75
– Current Treatment
Both Uncrystallised and Crystallised funds are used to provide a dependant’s pension subject to tax under PAYE
Paid out as a lump sum after 55% tax deduction
– New Rules, post April 2015
- A member may nominate a beneficiary to receive the remaining fund.
- The nominated beneficiary may access funds flexibly at any age and pay tax at their marginal rate.
- No restriction on how much can be flexibly drawn at any time, has been identified.
- The alternative option of receiving a lump sum payment, subject to a 45% flat rate tax charge remains – although this arrangement may change to income tax at the recipient’s marginal rate, by 6 April 2016.
As usual there are many details that will require clarification, but the proposed changes are significant and certainly do seem to be good news for pension savers in SSAS, SIPP or in any other “Defined Contribution Pension Schemes”.
More information may be made available following the Chancellor’s Autumn Statement on 3rd December 2014. In any event, these reforms will open up fresh opportunities for retirement income planning – wealth preservation and wealth inheritance.
For more information on what these proposed changes could mean for you and to find out more about SSAS, SIPP and Defined Contribution pension schemes, please do not hesitate to contact us.