The Government is being urged to slap income tax on inherited pensions worth £90,000-plus instead of making them liable for inheritance tax.

Another option is to impose a tax charge at death on unspent pensions worth £150,000, £200,000 or £250,000, according to a finance industry group calling for a radical rethink of inheritance tax changes due in two years’ time.

Just levying income tax or charges on inherited pensions direct would reduce the burden on grieving families yet still rake in around the same amount of money, The Investing and Saving Alliance has told the Government.

Tisa says its plan would also avoid unnecessary delays in sorting out estates – which can trigger interest of 8.25 per cent on unpaid inheritance tax from six months after a death – and changes in behaviour of people saving into and accessing their pensions.

Inheritance tax is levied at 40 per cent on estates above a certain size.

The Government announced in last year’s Budget that money remaining in pension pots is going to become liable for the tax like other assets, such as property, savings and investments, starting in spring 2027.

The move is part of an inheritance tax raid which includes freezing the current main tax-free thresholds until 2030 and reforms to agricultural and business property reliefs.

Read More: msn.com