IHTM17001 - Pensions: introduction
A pension scheme consists of a scheme or one or more arrangements to provide benefits to or in respect of scheme members:
- on retirement,
- at a certain age,
- on death, or
- in the case of incapacity.
Successive governments have introduced very generous tax reliefs for pensions saving to encourage individuals to provide an income for themselves when they retire, instead of relying on the State. In general, contributions into a UK registered pension scheme are tax relieved and growth within a scheme is tax free.
Although the tax reliefs on pension schemes are extensive, they do not amount to a total exemption from tax. There are occasions when Inheritance Tax charges may arise on a scheme, the contributions to it or payments from it (IHTM17041).
The legislation relating to pension schemes changed significantly on 6 April 2006 when a single set of rules was introduced to replace the previous eight different regimes. Further changes were introduced by the Taxation of Pensions Act 2014 with effect from 6 April 2015. These changes allow people much greater flexibility in how they can access their pension benefits and what can happen to any remaining pension fund when they die.
There have been many other changes to pension rules over the years and it is still an area of interest to many people. By their nature, pensions are long term arrangements and you may see a variety of products set up at different times with different structures. However, the principles to apply for Inheritance Tax purposes are the same.
This part of the guidance looks at;