Under the new system, anyone who dies below aged 75 will be able to give their remaining defined contribution pension to anyone completely tax free, whether it is in a drawdown account or untouched as long as it is paid out in lump sums or is taken through a flexi access drawdown account. This does not apply to annuities (except capital protected annuities) or scheme pensions.
Those aged 75 or over when they die will be able to pass their defined contribution pension to any beneficiary who will then be able to draw down on it at their marginal rate of income tax.
This tax cut will apply to all payments made after April 2015.
Beneficiaries will also have the option of receiving the pension as a lump sum payment, subject to a tax charge of 45% (if the deceased was over 75). The Government intends to also make lump-sum payments subject to tax at the marginal rate (not a flat rate charge of 45%). It will engage with pension industry in order to put this regime in place for 2016-17.
Please note this note is based our current interpretation of the proposed changes and you should not make any decisions based on the above content.