Tories axe 55% 'death tax' in pre-election bid to woo UK voters
During his speech to delegates at the conference, which began on Sunday and is due to come to a close on Wednesday, Osborne unveiled a £150 million pre-electoral tax break that could reap benefits for hundreds of thousands of Britons. Following its implementation in 2015, the policy shift will abolish a 55 percent tax on pensions passed on to deceased UK citizens’ family members.
The tax cut is set to be confirmed in Osborne’s autumn statement scheduled later this year, and will come into effect in April 2015.
The Conservatives’ move to cut the tax paid by spouses and children when the main earner in the family dies is reportedly part of a strategic drive to frame the Tories as a party that prioritises the interests of hard-working taxpayers in advance of the 2015 general election. The Conservatives had been hopeful that headlines would be influenced by this pre-electoral manoeuvre as their 2014 conference unfolded.
But The Independent reported on Sunday, Conservative ministers have acknowledged behind closed doors the opening of the conference has been compromised by a series of developments.
The recent defection of MP Mark Reckless to Nigel Farage’s UK Independence Party – the second Tory MP to defect in the last two months – and the resignation of Tory Brooks Newmark as Minister for Civil Society on Saturday, amid a sexting scandal, have been an unwelcome prelude to the Conservatives’ annual conference. Newmark’s resignation followed revelations he had sent an explicit image of himself to an undercover journalist.
In light of recent developments, Prime Minister David Cameron admitted that the Conservatives’ four-day gathering had not been graced with “an ideal start”.
‘Death tax’ explained
Presently, when a UK citizen aged 75 or over passes away a hefty 55 percent tax is levied by the state on their pension pot. The same tax is also applied when a British person under the age of 75 passes away, if their pension fund is already located in a drawdown bank account. Spouses and financially dependent offspring up to the age of 22 are currently excluded from the tax, however, and pay a marginal income tax rate.
Once the Tory’s pension tax policy shift comes into effect, if a British person aged 75 or over passes away the deceased’s beneficiaries will merely have to pay a marginal rate of income tax – usually 20 percent. They will also be granted access to the pension funds at any particular age, with no restrictions on the amount they can withdraw.
In the case of a deceased person under 75, their pension fund will, as of April 2015, be passed on tax free to a specially nominated beneficiary who will also be exempt from tax should they wish to withdraw money from the inherited pension.
In an effort to convince the British public that the Tories’ economic plan for 2015 and beyond can secure economic recovery, Osborne is expected to propose the tax cut at the party’s conference on Monday.
The Chancellor is expected to frame the proposed policy shift as “a pension tax abolished” - “not a promise for the next Conservative government, but put in place by Conservatives in government now.”
UK pensions expert Ross Altmann told the Independent the tax cut signalled good news for pension savers. “Those who inherit pension funds can choose to keep it as a tax-free pension, or they can just pay income tax on it and spend the money perhaps to help them on to the housing ladder or with education fees,” he said.
“Retirees will have a real incentive to keep money in their pension funds now that the threat of a 55 percent tax penalty is being removed. This makes pensions more attractive than ever before.”
Osborne is expected to denounce the opposition Labour party’s economic vision at the conference on Monday, suggesting it is irrational to claim that living standards can be raised while more funding is provided for the NHS and national security is maintained.
A Tory proposal to lower the maximum social benefits paid to UK families, from £26,000 to £23,000 a year, also due to be discussed at the conference, has been denounced by a number of pressure groups.
The Tories say savings generated from the new benefits cut could be used to put 3 million apprenticeships in place. But Alison Garnham, chief executive of the Child Poverty Action Group, argues such a measure would push more British children into poverty.
Chris Goulden, head of poverty research at the Joseph Rowntree Foundation, suggests lowering the household benefit cap further “does little to cut the deficit.""The existing cap affects just 40,000 families, cutting their incomes by £93 a week on average.”