IFS suggest higher taxes on inherited pensions

Beddie

NedS said:

Please is anyone able to explain the rationale behind the differing income tax treatment of an inherited pension whereby the original pension holder dies before / after 75? Seems strange that those inherited pensions from a death before 75 should then be free from income tax when the assets are drawn. Tax relief has been given on the way in, so it seems reasonable that income tax should be payable on the way out, regardless of whom the beneficiary may be. I'm struggling to understand the rationale of why an inherited pension should be treated any differently, and why the arbitrary age of 75.

Because George Osborne was an idiot? He failed to spot many of the unintended consequences of his actions.

zagfles

LHW99 said:

zagfles said:

LHW99 said:

Changing the rules probably will happen, although in my opinion the LTA should be abolished first, as it is (frequently) a penalty on growth.

There are lots of taxes on growth, CGT is specifically a tax on growth, IHT is often a tax on house price growth, dividend/interest taxes tax increases in savings/equity funds etc. So don't see why the LTA being a tax on growth is controversial.

Although within a pension (which is what the IFS was considering I think) CGT isn't charged.

Well exactly, so the LTA is used instead. A tax on growth above an allowance, a bit like CGT. You seemed to be implying there was something wrong or anomalous with the LTA because it taxes growth!

zagfles

Beddie said:

NedS said:

Please is anyone able to explain the rationale behind the differing income tax treatment of an inherited pension whereby the original pension holder dies before / after 75? Seems strange that those inherited pensions from a death before 75 should then be free from income tax when the assets are drawn. Tax relief has been given on the way in, so it seems reasonable that income tax should be payable on the way out, regardless of whom the beneficiary may be. I'm struggling to understand the rationale of why an inherited pension should be treated any differently, and why the arbitrary age of 75.

Because George Osborne was an idiot? He failed to spot many of the unintended consequences of his actions.

Who says there were unintended? As above, I suspect they were intended, as he couldn't get IHT thresholds increased.

Applies more to Gordon Brown, for instance I doubt he intended to help kill off DB pensions in the private sector.

MattMattMattUK

Personally I think inheritance tax is one of the taxes that should be abolished entirely, however if it is unlikely to be unless the Conservatives do it in the dying days of this government.

MattMattMattUK

zagfles said:

Beddie said:

NedS said:

Please is anyone able to explain the rationale behind the differing income tax treatment of an inherited pension whereby the original pension holder dies before / after 75? Seems strange that those inherited pensions from a death before 75 should then be free from income tax when the assets are drawn. Tax relief has been given on the way in, so it seems reasonable that income tax should be payable on the way out, regardless of whom the beneficiary may be. I'm struggling to understand the rationale of why an inherited pension should be treated any differently, and why the arbitrary age of 75.

Because George Osborne was an idiot? He failed to spot many of the unintended consequences of his actions.

Who says there were unintended? As above, I suspect they were intended, as he couldn't get IHT thresholds increased.

Applies more to Gordon Brown, for instance I doubt he intended to help kill off DB pensions in the private sector.

Brown did seriously damage private pensions (as well as the wider economy) but defined benefit private pensions were always going to die, they are too much of a liability risk for private schemes.