UK Summer Budget: Pensions
Following the UK elections in May 2015, the Chancellor presented the Summer Budget on 8 July 2015. Key announcements relating specifically to UK pensions included:
- As already announced in Autumn 2014, it was confirmed that if a lump sum (rather than a pension income) is drawn by a beneficiary after the death of a pension member on or after age 75, it will be taxed in the UK at the beneficiary’s marginal rate of income tax. This is a change from the current rate of 45% and the historic rate of 55% prior to April 2015. This aligns the tax treatment of lump sums with pension income. Lump sums paid on death before age 75 are normally tax-free in the UK.
- The reduction in the lifetime allowance (LTA) from £1.25MM to £1MM, as announced in March 2015, will remain in place. The Chancellor also confirmed that the LTA will rise in line with CPI from 6 April 2018. While details have not yet been published, transitional protection will be available for individuals with pension rights valued over £1 million. These protections are expected to be similar to Individual Protection 2014 and Fixed Protection 2014.
- The Government has issued a consultation paper on whether there should be a reform of pensions tax relief. While this is unlikely to affect current expatriates, as they are usually no longer contributing to a UK pension, the impacts could be far reaching for UK residents. The scope of the consultation is wide including the possibility of taxing pensions more like UK Individual Savings Accounts (ISAs) in the future.
- The Government confirmed that it will be publishing its plans in the autumn for the development of a secondary annuity market. Such a market would enable members who have already purchased annuities to sell their annuity income in exchange for a cash lump sum.
Photo Credit: “Chancellor George Osborne outside No.11 Downing Street on Budget Day” is copyright (c) 2011 HM Treasury and made available under CC BY-NC-ND 2.0