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Product category: Tax and National Insurance
News Release from: Standard Life Bank | Subject: Inheritance tax
Edited by the Insidemoneytalk Editorial Team on 14 March 2008

Standard Life Budget Update -
inheritance tax avoidance loophole
closed

The Budget has confirmed that the Revenue has closed a loophole which allowed pension funds to be passed on tax-free at death.

Providers of small self-administered pension schemes (SSAS) had been marketing scheme pensions as a way of passing pension money onto family without tax since A-day However, the Government has clamped down on what it regards as an abuse of the rules (Budget Note 45)

The change will apply to members who die on or after 6 April 2008.

The rules will treat any increase in the pension rights of one member following the death of another member - if the two members were connected - as an unauthorised payment.

This means that there will be a tax charge of 70%, the same as applies to funds passed on via alternatively secured pension (ASP).

The funds passed on will also be liable to Inheritance Tax bringing the potential tax charge to 82%.

The charge will not apply if the scheme has 20 or more members and the funds arising following the member's death are evenly distributed amongst all members of the scheme.

This means that these rules will not impact on final salary schemes.

Andrew Tully, Senior Pensions Policy Manager at Standard Life said: 'This is a logical move which brings scheme pension inheritances into line with alternatively secured pensions.

This creates a level playing field for ASP and scheme pensions.

However the tax rate of 82% applied to inheritances under both seems unnecessarily punitive, and will not do anything to encourage more pension savings.'.

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