Although the Government has stated otherwise, some people using the new pensions flexibilities might find their saving are hit by inheritance tax (IHT).

It was announced last September that defined contribution pension scheme members dying before the age of 75 would be able to leave any remaining drawdown funds to their survivors completely tax free.  Many people are keeping this statement in mind when making retirement decisions.

Unfortunately, unless the existing legislation is amended, drawdown funds will actually fall into the member’s estate upon death.  A member’s estate is subject to inheritance tax.

Human resource professionals explain that this completely contradicts what the Government stated last September.  If it is enforced, it could potentially lead to a double taxation of drawdown funds where a member dies after reaching age 75.

HR experts are pleading for the Government to address this issue before another Finance Bill passes.