People under 75 who die having started to draw an income from certain types of annuities from April next year will have that money passed on to a beneficiary tax-free.
This only applies for what's called a 'guaranteed term' annuity or a 'joint life' annuity. To count for the exemption, the person must die in April next year or later, and have only taken their first annuity payment from April 2015. An annuity pays a regular retirement income in exchange for the person's pension pot.
A guaranteed annuity pays out to your beneficiaries after you die, but this usually only lasts for 10 years after you bought the annuity.
So if you opt for a 10-year guarantee and die after two years, there would be eight more years’ worth of payments. This is currently taxed, but won't be from next April for those who qualify for the exemption.
A joint-life annuity pays an income to a spouse usually for the rest of their life if you die before them. Again, this is currently taxed but won't be from next April for those who qualify. Another change will mean joint life annuities can be passed on to any beneficiary. Currently, they can only be passed to a spouse.
The move comes following the announcement in September that savers will be able to pass on money in their pension pot tax free to their children and grandchildren upon their death, after Chancellor George Osborne said he will abolish the 55% penalty tax (read the full Pension inheritance penalty tax to be axed story).