Her Majesty’s Revenue & Customs is unlikely to be your favourite government department. But you have to pity the poor bean counters.
It can’t be fun spending all day sending brown envelopes across the country in the hope of collecting enough tax to save the Chancellor’s blushes on Budget day. But now the tax office has gone too far in its pursuit of our money.
Last week it emerged that grieving families had been sent demands to pay tax on inherited pensions. You might think that sounds entirely reasonable – after all, we’ve all heard Benjamin Franklin’s famous adage that death and taxes are the only certain things in life. However, in this case the rule does not apply.
Just over a year ago George Osborne made sweeping changes to the pensions system. The headline reform was the removal of shackles that meant most people bought annuities. A shake-up of the tax system around how pension savings are passed on after death was just as important but garnered far less attention.
As a result, if you die under the age of 75 then untouched savings including those held in pension investment accounts – known as drawdown contracts – or in joint life, fixed term or protected annuities, are passed on entirely tax-free.
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