Policy paper

Statement of Practice E3

Published 1 April 1978

© Crown copyright 1978

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This publication is available at https://www.gov.uk/government/publications/statement-of-practice-e3/statement-of-practice-e3

1. This statement clarifies the Inheritance Tax (IHT) liability of benefits payable under pension schemes.

2. No liability to IHT arises in respect of benefits payable on a person’s death under a normal pension scheme except in the circumstances explained immediately below. Nor does a charge to IHT arise on payments made by the trustees of a superannuation scheme within Inheritance Tax Act (IHTA) 1984 section 151 in direct exercise of discretion to pay a lump sum death benefit to any 1 or more of a member’s dependants. It is not considered that pending the exercise of the discretion the benefit should normally be regarded as relevant property comprised in a settlement so as to bring it within the scope of IHTA 1984 Part III. The protection of IHTA 1984 section 151 would not of course extend further if the trustees themselves then settled the property so paid.

3. Benefits are liable to IHT if:

  • (a) they form part of the freely disposable property passing under the will or intestacy of a deceased person - this applies only if the executors or administrators have a legally enforceable claim to the benefits, if they were payable to them only at the discretion of the trustees of the pension fund or some similar persons they are not liable to IHT
  • (b) the deceased had the power, immediately before the death, to nominate or appoint the benefits to any person including his dependants

4. In these cases the benefits should be included in the personal representatives’ account (schedule of the deceased’s assets) which has to be completed when applying for a grant of probate or letters of administration. The IHT, if any, which is assessed on the personal representatives’ account has to be paid before the grant can be obtained.

5. On some events, other than the death of a member, information should be given to the appropriate office of HM Revenue and Customs (HMRC) Capital Taxes. Those events are:

  • (i) the payment of contributions to a scheme which has not been approved for Income Tax purposes
  • (ii) the making of an irrevocable nomination or the disposal of a benefit by a member in their lifetime (otherwise than in favour of a spouse) which reduces the value of their estate (eg, the surrender of part of the pension or lump sum benefit in exchange for a pension for the life of another)
  • (iii) the decision by a member to postpone the realisation of any of their retirement benefits

6. If IHT proves to be payable HMRC Capital Taxes will communicate with the persons liable to pay the tax.

7. See also Statement of Practice 10 (1986) and Tax Bulletin No 2 of February 1992, the article ‘Inheritance Tax retirement benefits under private pension contracts: IHTA 1984 section 3(3)’.

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