Pensions and employment taxation

Inheritance tax and pensions

Statutory backing will be given to the current concessionary inheritance tax (IHT) treatment for pension scheme members who die before age 75. There will be no IHT charge where the recipient of any death benefits is a spouse, civil partner or someone financially dependent on the scheme member. An IHT charge will also not arise in other cases where the member, while in good health, chooses not to buy a scheme pension or annuity, even if their health subsequently deteriorates.

Where death occurs at age 75 or later and the individual is drawing an 'alternatively secured pension' (ASP), any 'transfer lump sum payment' (ie transfer to another scheme member) will be subject to IHT, unless the recipient is a spouse, civil partner or someone financially dependent on the scheme member. Death benefits paid to charity will be IHT free.

Similar provisions apply where an ASP death benefit becomes payable on the subsequent death of a surviving spouse, civil partner or financial dependant. The lump sum will normally be treated as an addition to the deceased member's estate. The scheme administrator will be responsible for accounting for and paying any IHT due.

Pension lump sum recycling

Amendments have been made to the draft legislation to prevent the recycling of tax-free lump sums as further tax-relieved pension contributions. The anti-avoidance measures will not apply where no more than 30% of a lump sum is recycled or where the lump sums are less than £15,000. This threshold will be increased in line with the standard lifetime allowance.

Exemptions for computers and mobile phones

The value of benefit in kind of computers loaned to employees will no longer be exempt from tax from 6 April 2006. From the same date, the tax exemption for mobile phones loaned to employees will be restricted to one phone per employee and will not extend to members of the employee's family or household.

Computer screen and other VDU users - eye tests and glasses

From 6 April 2006, there will be no tax charge where an employer pays for an eye test and/or corrective glasses by providing a voucher to employees who use VDUs - eg computer screens. This brings the treatment of vouchers into line with other methods of reimbursement.

Employer-related securities

With retrospective effect from 2 December 2004, any reward from employment obtained by employees from avoidance schemes using options over shares or securities will be fully subject to national insurance contributions and income tax through PAYE.

Company cars

The figure for the company car fuel benefit charge will remain at £14,400 for 2006/07. The CO₂ emissions level for the minimum petrol percentage charge of 15% will stay at 140g/km for 2006/07 and 2007/08, but will fall to 135g/km from 2008/09. From 2008/09, there will also be a new 10% rate for cars with emissions of 120g/km or less.