See my letter in todays Financial Times. Call me an old-fashioned Leftie, but it cant be right a tax change allowing the richest to pass on untaxed income to their heirs. (Sorry if this breaks the No Politics, no Religion rule) Huge tax loss is likely from new rules on pension pots Sir, You have reported extensively on the chancellor’s announcement that any unused pension pots at death will no longer pay 55 per cent tax, but can be given to heirs and taxed at their marginal rate. Rather than being a “punitive” tax, as often described, the current 55 per cent rate is neutral. It simply claws back tax relief already given to a 40 per cent taxpayer on the original pension contributions, and taxes investment returns in the pension pot and the 25 per cent tax free cash lump sum. The new rules break the important principle that tax relief on pension contributions defers income tax but does not avoid it, since tax is paid on the pension income. Income tax on pension contributions can now be avoided altogether by giving unused pensions at death to young grandchildren, who will pay no tax, if the annual amount is less than their personal tax allowance. The likely total tax loss is huge. The latest official figures from 2010 show £370bn saved in personal pensions. If only 5 per cent of this is given to grandchildren who are not taxpayers, the loss to the taxpayer – versus paying 55 per cent tax – is over £10bn. Clever accountants can stop looking for inheritance tax loopholes – the coalition government has created a simple way for the richest to avoid paying income tax and to pass on wealth tax free to their grandchildren. This change has been spun as an incentive for people to save for their families. To ensure the wealthiest do not benefit disproportionally, the amount that can be given from an unused pension pot should be capped at, say, £50,000. Anything above this should continue to pay 55 per cent tax. John Ralfe, John Ralfe Consulting, Nottingham, UK
Posted on: Wed, 08 Oct 2014 06:58:25 +0000