As further clarification of the treasury’s key Autumn Statement points gradually works its way out of the woodwork, it’s becoming clear exactly who will benefit from the upcoming changes and who will be left worse off.
In one rare example of a universally welcome move, legislation is to be introduced which will ensure that any and all assets left inin drawdown at the time of individual’s death will not be subject to inheritance tax (IHT). Roughly translated, if the holder was to allocate funds for a drawdown scheme but would then die prior to all of the funds being drawn, there would be no IHT liability to speak of.
Better still, the treasury confirmed that the IHT drawdown exemption would in fact be backdated and therefore apply to pension holders who died on or after 6 April 2011.
The alteration in legislation was seen by most experts and pension holders as mandatory, in light of the new pensions freedoms that were enacted in April this year. Subject to taxation, this year’s sweeping reforms provided defined contribution savers aged 55 and over total access to all pension savings. This in turn opened up the opportunity of accessing drawdown for an enormous contingency of pension holders, for whom excessive taxation – i.e. IHT – may have been applied were they to die prior to all funds being withdrawn.
The government also announced significant reforms to death benefits during the April budget statement, which would from then on allow pension assets to be left to beneficiaries with a much less aggressive taxation liability.
Speaking on behalf of Talbot and Muir, head of pensions technical Claire Trott was clear in welcoming the positive move by the government, though insisted that further clarification would be needed in order for the exact specifics and limitations of the new legislation to be fully understood.
“I believe that the government is just making it so that should someone not draw all their funds before death then they don’t need to be concerned about IHT,” she explained to Professional Advisor in a written statement.
“In theory, it could have been seen by HMRC that they hadn’t drawn income to avoid IHT which would mean they could therefore just apply it, even though it is usually outside the estate.
“Any sort of clarity should be welcomed and I hope that it applied just as much to uncrystallised funds too, although it doesn’t say so.”
It was a similar reaction from Martin Tilley of DentonsManagement too, one who stated that while the reform in its own right is nothing but a positive move, there are many specifics still to be ironed out and examined.
“This is good news and I gather will formalise what was already understood to be the case, but it will be interesting to see the fine print,” he commented.
“It will also be interesting to see if any inheritance tax, perhaps caught in this since 2011, might be reversed?
“This has of course become increasingly more important following the enactment of the pensions freedoms earlier this year.”