Unveiling the Hidden Six-Figure Tax Challenge in Labour’s Dying Law
In a monumental move, terminally ill seniors may soon gain the power to choose an earlier end to their suffering, potentially shielding their families from hefty six-figure tax burdens under new assisted dying legislation, warn financial experts.
Currently, pensions can be passed on free of income tax if the individual passes away before reaching 75 years old.
If assisted dying is legalized, however, it could force individuals nearing this age into a heart-wrenching decision: prolong their life or spare their family a monumental financial burden.
Pension expert Andrew Tully emphasizes that this potential law change adds yet another layer of complexity to an already sensitive situation.
Under existing regulations, if someone dies before the age of 75, their pension is inherited tax-free. But if they pass on after that age, beneficiaries face income tax on the total, which can be as high as 45%.
This reality became even more pressing when lawmakers approved assisted dying last month, paving the way for those with less than six months to live to make a voluntary choice about their end-of-life care.
According to current proposals, individuals will need approval from two independent doctors and a High Court judge to proceed.
Yet, the timing remains in the hands of the terminally ill individual. If eligible and approaching age 75, they face a painful decision about whether to pass on early to protect their loved ones from crippling tax implications.
For instance, if someone with a £500,000 pension dies at 75, the inheritor could face a staggering £225,000 in income tax if they withdraw it in a lump sum.
Conversely, had they passed before turning 75, this tax liability would vanish entirely.
Andrew Tully from Nucleus Financial highlights this as yet another factor for individuals nearing the end of their lives to consider.
“The tax benefits drastically change depending on whether one passes before or after 75,” he states.
“This creates a precarious situation where even a few days can lead to financial ramifications that may total in the hundreds of thousands.
“For those who are terminally ill, contemplating financial implications during this already stressful time can be overwhelming, especially amidst complex family dynamics.”
“Patients in this position are not just facing the end of their lives; they also carry the weight of ensuring their loved ones are financially secure.”
“While there’s little strategic planning that can be done at this stage beyond indicating who should inherit, this new legislation adds another crucial factor to the equation.”
