By Jonathan Davies
George Osborne today (Monday) unveiled plans to cut the controversial pensions 'Death Tax', at the Conservative Party conference.
Currently, inheritors are forced to pay a 55% tax on money left to them in "defined contribution" pensions by those aged 75 or over. But the Chancellor's plans will see inheritors pay only a marginal tax, or none at all if the person was under 75 and the pension was untouched.
The Treasury has estimated the policy, which will come into effect in April, will cost roughly £150m a year.
The government believes it will benefit around 320,000 people.
Outlining the plans, George Osborne said: "People who have worked and saved all their lives will be able to pass on their hard-earned pensions to their families tax free.
"The children and grandchildren and others who benefit will get the same tax treatment on this income as on any other, but only when they choose to draw it down.
"Freedom for people's pensions. A pension tax abolished. Passing on your pension tax free.
"Not a promise for the next Conservative government - but put in place by Conservatives in government now."
Across the party conference, the Conservative Party will outline plans for policies on housing, apprenticeships and pensions.
The Chancellor is also expected to criticise Labour's key policy of reversing spending cuts to the NHS. Mr Osborne said: "The idea that you can raise living standards, or fund the brilliant NHS we want, or provide for our national security without a plan to fix the economy is nonsense.
"It's the economy that builds houses. It's the economy that creates jobs.
"It's the economy that pays for hospitals. It's the economy that puts food on the table.
"That's why it's the economy that settles elections. And the Conservatives are the only people in British politics with a plan to fix the economy."
Craig Palfrey, managing director of independent pension advice website Increaseyourpension.co.uk, is less than enthusiastic about the plans. He said:
"Don’t be fooled by the government's proposed plans to scrap the 55% tax rate.
"This tax change is likely to have limited impact to the majority of people, who don’t actually suffer this charge anyway.
"Not surprisingly, the people who are likely to benefit the most from abolishing the 55% rate are those with nice fat pension funds which have not already been structured to avoid this tax.
"In reality, the pension reforms announced earlier this year already made it possible for most people to arrange their pension so that the 55% tax charge won't apply.
"It could actually have a negative impact, because it may encourage people with smaller pension funds to put them into investment backed pension drawdown products which are unsuitable for their circumstances."
The Chancellor also announced that a Conservative government would clamp-down on tech firms which Mr Osborne said go to "extraordinary lengths" to avoid paying tax.
He said: "If you abuse our tax system, you abuse the trust of the British people.
"And my message to those companies is clear. We will put a stop to it. Low taxes, but low taxes that are paid."
Simon Walker, the director general of the Institute of Directors (IoD), praised the Chancellor's speech and its recognition of business.
Mr Walker said: “At the heart of the Chancellor's speech was a welcome recognition of the centrality of business and enterprise to every other area of government activity.
“This was particularly clear in the celebration of the role played by businesses, large or small, in creating jobs and generating prosperity. Continuing reform to the welfare system goes hand in hand with long term job creation.
“The Chancellor made clear his commitment to a low tax economy, which will ensure that the UK becomes even more competitive and business friendly. However, he was equally clear that growth in the future must reach every corner of the country. In a survey of IoD members immediately after the Scottish referendum, support for economic devolution to our regions and cities was overwhelming, and to achieve the stated objective of closing the North-South gap, the government must recognise this new appetite for change.
“The IoD has long maintained that if you believe in free markets, you have to recognise when the system breaks down or trust in it is eroded. Tackling the perception that multinationals get a sweeter deal than the vast majority of businesses is the right thing to do, but can only be effective when combined with a radical simplification of the UK's sprawling tax code.
“Amidst all of this, a continuing focus on fiscal restraint and deficit reduction will reassure businesses that the government recognises an old truth, that sound public finances constitute the bedrock on which all businesses are built.”
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