• Christopher Pedel


There's a potential IHT trap for members who are considering transferring their death benefits out of a DB scheme because they're in ill health, particularly if they have a terminal illness.

Pension scheme death benefits are normally outside the member's estate, provided the sccheme trustees/administrators have discretion over who it's paid to or the form of payment. This means that normally no IHT is payable in respect of the death benefits, no matter how large the amount.

However, if a member transfers their benefits, the value of the death benefits is in their IHT estate if they die within two years. If they were in good health at the time of the transfer, the value of the death benefits is normally negligible so this has no real effect. However, if thet were in ill health at the time of the transfer, the open market value of the death benefit for IHT purposes could be close to the eventual payout. This could cause a substancial death benefits lum sum to be subject to IHT if it's paid to someone who's not an exempt beneficiary for IHT purposes.

Be aware that an HMRC form IHT 400 is used to calculate IHT on death. The IHT 400 notes confirm that HMRC will ask the deceased member's legal personal representatives to provide evidence of the member's state of health and life expectancy at the time of the transfer if they die within two years.

Article taken from TECHTALK

19 views0 comments

Recent Posts

See All

It is complex to identify a vulnerable client as there are many different situations; the vulnerability may not be permanent and not everyone becomes vulnerable in the same way. Clients could potentia

Here we look at some situations where clients comfortable with the associated risks could benefit from Business Property Relief-qualifying investments for inheritance tax planning. Nothing should be t

This privacy notice explains how we use any personal information we collect about you. What information do we collect about you? We collect information about you when you engage us for financial plann