Hand down your pension pot for generations... free of the ruinous 55% 'death tax' Chancellor has said 55% tax on pension pots left to children will be scrapped It means that if a pension-holder dies before age 75, there will be no tax If they are over 75, beneficiaries will only pay income tax as they withdraw But until now, this tax advantage only applied for one generation In future what remains of pot can be passed on with same tax benefits Plans: Chancellor George Osborne has already said that the 55 per cent tax on pension pots bequeathed directly to children will be scrapped Families will soon be able to hand their pension pots down tax-free for multiple generations, the Government announced yesterday. Chancellor George Osborne has already said that the 55 per cent tax on pension pots bequeathed directly to children will be scrapped. It means that if a pension-holder dies before age 75, there will be no tax. If they are over 75, beneficiaries will only pay income tax as they withdraw cash. But until now, this tax advantage only applied for one generation, after which any leftover cash was subject to the ruinous 55 per cent "death tax." In future what remains of the original pot can be passed on again and again through the generations, along with the same tax benefits. This would allow grandchildren and great-children to pay less tax - and some cases no tax. Tom McPhail, of Hargreaves Lansdown, said: "This confirms for the first time that pension fund money can cascade down through generations indefinitely and will be tax-free provided the original member died before age 75. Even if the member dies after age 75, the benefits only become taxable in the hands of the beneficiary or other successors when they actually come to draw the money out. This creates the potential for a parallel inheritance planning universe running alongside any other family wealth and outside the inheritance tax system. A draft clause added to the government's Taxation of Pensions Bill said drawdown funds could be passed on to any "nominee" in the event of death but, crucially, that this person could then nominate a successor. The successor could then nominate a second successor, with the money passing through generations in a tax-efficient way. Tax breaks: Currently, only spouses and children under the age of 23 are exempt from the 55 per cent tax, and are instead allowed to withdraw the pension and pay their usual income tax rate. File image Andrew Tully of MGM Advantage said: "Confirmation that drawdown pension funds can be cascaded down through generations is very useful for people who are wealthy and have significant pension savings. Passing money on within the pensions wrapper is likely to be a very tax efficient way of leaving wealth to younger generations as no inheritance tax is levied. Currently, only spouses and financially dependent children under the age of 23 are exempt from the 55 per cent tax, and are instead allowed to withdraw the pension and pay their usual income tax rate.