28th November 2014
Chancellor George Osborne is expected to make another change to pensions in next week’s Autumn Statement, scrapping tax on joint life annuity payments.
Currently payments paid on joint life annuities – which pay out for a couple until they both die – are liable to income tax but Osborne (pictured) expected to abolish the tax as part of plans to cut the ‘death tax’ of 55% on pension funds in drawdown.
According to the Financial Times, income payments made to a surviving partner from a joint life annuity, also known as ‘widow’s pensions’, will be made tax free. Joint life policies typically pay out half the original income to a surviving spouse.
This follows changes made to ‘death tax’ made in, and since, the Budget. Pension funds that are in drawdown will not be liable to the 55% death tax if the pensioner dies before age 75. If they die after age 75 the amount of tax paid on the pension pot will be reduced from 55% to 45%, and is expected to reduce to the recipient’s marginal rate of income tax.
Adrian Boulding, pension strategy director at Legal & General, told the Financial Times that scrapping tax on joint life annuities would correct a taxation inconsistency.
‘There was an inconsistency created…which needed to be corrected,’ he said. ‘If this inconsistency is corrected then it would be very good news for the industry and for the widows and widowers receiving income from joint life annuities.’