55 Per Cent Tax Charge Could Go

55 Per Cent Tax Charge Could Go.

Chancellor of the Exchequer, George Osborne, has confirmed for the first time since his budget speech, that the Government is in consultation to remove the 55% tax charge.

In the budget speech, Mr Osborne slipped in a few words when talking about the new flexible pensions legislation that taxation would be made but only at a pension scheme members marginal rate.

This set our “ears flapping” immediately thinking that the 55% tax charge on death for drawdown could be reduced alongside other benefit options.

The Chancellor raised the same point today when speaking to the Treasury Select Committee and confirmed that a consultation was taking place.

What is the 55% Tax Charge?

It is paid on pension drawdown where a member dies and the surviving partner or estate receives the balance of the pension fund as a lump sum.

• It is paid on pension funds that have not been taken or crystallised, on death after age 75 and no benefits have been paid
• It is potentially payable if you withdraw more than 25% of the pension fund as lump sum
• It is payable if you withdraw you pension fund early, before the normal retirement age
• It is payable if you withdraw pension benefits in excess of the lifetime allowance

Comment

If people are to be encourage to save for retirement then flexibility and a fair tax system should be in place.  It is simply not fair that you have paid into pension schemes and in many cases both you and your employer have only received a 20% tax break, yet if you withdraw your pension fund in the wrong way, or you die having not made arrangements for those pension or if you have simply built up too much, you then get taxed at 55% - a full 15% above the Inheritance Tax, the High Rate Tax rate and 35% over the basic rate of income tax and basic relief rate.

Why benefits cannot just be added to income or estate value on death and calculated as normal, we do not know.