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UK's top financial officer kills 'death tax' on pensions

I've been keeping a close eye on the United Kingdom for the last week because the hubby was in Scotland covering the Ryder Cup international golf tournament.

That event got a lot of attention, especially since it came on the heels of Scotland's vote to remain part of the UK. Then there was the European golfers' trouncing of their U.S. counterparts.

Now financial and tax folks are focusing on our closest European ally because of the decision by the UK's top financial officer to abolish its tax on some inherited pensions.

George Osborne announces to the gathering of the Conservative Party Conference in Birmingham, England, that he is ending the 55 percent tax on pensions left to family members. Video via Belfast Telegraph.

"There are still rules that say you cannot pass on to the next generation any of your pension pot when you die without paying a punitive 55 percent tax on it. Now I could choose to cut this tax rate. Instead, I choose to abolish it altogether," said UK Chancellor of the Exchequer George Osborne in remarks at today's (Sept. 29) session of the Conservative Party Conference in Birmingham, England.

"People who have worked and saved all their lives will be able to pass on their hard-earned pensions to their families tax free, effective from today," added Osborne, whose financial role is essentially the equivalent of the Treasury Secretary here in the United States.

'Today' actually means April 2015: While Osborne said the so-called death tax is dead "effective from today," the tax actually will be on life support for a while.

The official UK government website clarifies that the pension tax change will take effect next spring:

"The Chancellor today (Monday 29 September) announced that from April 2015 individuals will have the freedom to pass on their unused defined contribution pension to any nominated beneficiary when they die, rather than paying the 55% tax charge which currently applies to pensions passed on at death."

The pension tax currently applies to untouched "defined contribution" amounts left by those aged 75 or older, as well as to pensions from which money has already been withdrawn.

Under the change, pension heirs will pay only the marginal income tax rate, or no tax at all if the deceased was under 75 and the pension is left untouched.

The change is estimated to cost the UK treasury approximately £150 million ($190 million U.S.) per year.

Younger workers' benefits cut, too: While older UK residents and their families might cheer the pension tax change, others aren't so thrilled with some of Osborne's other announced fiscal moves.

Osborne told his party's assembly that some workers' benefits would be frozen for two years. Affected programs include the Jobseeker's Allowance, Income Support, Child Tax Credit and Working Tax Credit, and Child Benefit and Employment Support Allowance.

That austerity move is projected to save more than £3 billion pounds ($3.81 billion U.S.) a year. That amount, in conjunction with £25 billion pounds ($31.7 billion U.S.) in annual spending cuts, is aimed at eliminating UK's deficit.

As expected, Labour Party members denounced the moves. They accused the conservative Tory Party of choosing to reward the richest one percent with billions in tax cuts, while cutting tax credits that make work pay for millions of striving families.

"While working people have seen their wages fall by £1,600 ($2,030 U.S.) a year since 2010, the Tories have once again shown they are the party of a privileged few at the top," a Labour member told BBC News.

Sound familiar, my fellow Americans?

Anti-estate tax advocates and government benefit foes in the United States will be closely watching how these moves in the United Kingdom play out, both politically and economically.

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