The inheritance tax (IHT) rules are to be changed from April 2017, offering each individual a family home allowance of £175,000 in addition to the IHT threshold of £325,000; meaning the total tax-free allowance for a surviving spouse or civil partner will be up to £1 million in 2020/21. This is being introduced so people can pass their home on to their children or grandchildren tax-free after their death and this will be phased in from 2017/18. The allowance will be gradually withdrawn for estates worth more than £2 million.
This new Inheritance Tax concession is to be funded by reducing the amount high earners can contribute into their pensions and receive tax relief. Most people can contribute up to £40,000 a year to their pension tax-free. From April 2016, this amount will be reduced for individuals with incomes of over £150,000 so that by the time someone is earning £210,000, the allowance has reduced to only £10,000.
The government has decided to delay implementation of a secondary annuity market i.e. where people can sell their annuity for a cash sum, until 2017. This is unlikely to affect BBC pensioners who are receiving an occupational pension.
The Government has opened up a consultation aimed at strengthening the incentive to save through pensions. The consultation is open until 30 September 2015 and is welcoming thoughts on simplifying tax relief, perhaps by introducing a top-up scheme and also aligning pensions more with ISAs i.e. contributions would be paid out of taxed income, there would be tax free build up and the funds at retirement could be withdrawn tax free.