The Institute for Fiscal Studies has today published its ‘Green Budget’ urging Chancellor Philip Hammond to introduce a pensions death tax.
The IFS called for the overhauling of “indefensibly generous” tax treatment of pension on death and the levying of both income tax and IHT on bequeathed funds.
In addition the charging of NICs on earnings for those above state pension age, potentially raising £1bn has also been called for. The IFS said a levy on NICs on private pension income, raising an estimated £650m per percentage point.
AJ Bell senior analyst Tom Selby said: “George Osborne’s decision to allow undrawn pensions to be passed on tax-free when the holder dies before age 75 was clearly a generous pre-election gambit targeted squarely at older voters.
“The cost of this policy is likely to increase as thousands of savers have swapped their defined benefit pensions for the flexibility of defined contribution. It would be no surprise if Phillip Hammond, who has not been shy of departing from his predecessor’s policies, is now revisiting this decision as he looks at ways to raise extra cash.
“This would potentially present a real problem for savers who have made decisions based on the existing tax treatment of DC pensions on death. Many DB members will have chosen to give up their guaranteed benefits because they want to prioritise passing on unused funds to loved ones. If the government pulled the rug from under the feet of savers’ by hitting their pots with extra tax and IHT charges they would understandably be very angry.”
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