The government is to abolish the 55 per cent pensions death tax charge, Chancellor George Osborne has announced.

Speaking from the Conservative Party Conference in Birmingham, Osborne said the measure will apply to all payments made from April 2015, and means that people who have worked hard and saved all their lives will be able to pass on their pension pot tax-free.

If the person is 75 or over, beneficiaries will only pay their marginal tax-rate when they draw down their income, as they would with any pension. If the person who dies is under 75 there will be no tax to pay at all.

“This is for everyone who works hard and saves hard for retirement,” Osborne said.

“There are people with pension pots of twenty, thirty or forty thousand pounds who currently pay a 55 per cent tax if they try and pass on any unused part of that pension to their children and grandchildren. This is people’s own money and they should be able to decide what they want to do with it before they die.”

Barnett Waddingham pension expert Malcolm McLean said the announcement is “extremely good news” and will be “widely welcomed”.

“It is right and proper that savers can feel assured that money they have voluntarily put away in a pension plan over many years and which they have not fully used should pass on to their loved ones on their death without some exorbitant tax charge being levied on it by the government.

“In an ideal world all tax charges on pension funds inherited on death would be abolished without a distinction between those aged under and over 75, or at least would only apply where the death occurred at a later age than 75. Under the circumstances, however, the Chancellor has probably gone further than many in the pensions industry expected and is to be commended for making the changes he has now announced.”

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