Grieving families could face huge tax bills because of a little-known rule over “death-inservice” payouts.
Millions are enrolled in pensions which offer a lump sum payment of up to four times their salary.
But the value of this has to be added to the total savings left by a contributor.
The total lifetime allowance limit (LTA) for pension contributions that can be made without incurring tax was capped last year at £1million.
So if the remaining funds are over that figure after the death-inservice sum is added, the surviving beneficiary faces income tax of 55 per cent on the excess.
Former pensions minister Sir Steve Webb said: “It’s hard enough dealing with the loss of a loved one without having to face a huge tax bill as well.
“The Government needs to review these rules as a matter of urgency.”
He spoke out after a 59-year-old widow told him she had to pay tens of thousands of pounds’ tax when her husband died aged 51.
“I am being penalised for becoming a widow,” she wrote.
The LTA was cut to £1million in April 2016 to prevent the very rich sheltering funds.
Source : EXPRESS