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HMRC internal manual

Inheritance Tax Manual

Pensions: examining the form IHT409: general factors to consider


The age of the deceased, together with other factors, can indicate whether or not there are likely to be substantial pension funds. In general, a person who dies young may not have had time to build up much pension entitlement. A person who dies after many years of retirement may have received most of their entitlement. Age may not be a factor though where an individual is very wealthy.

Where a person dies before retirement age, there is likely to be a lump sum death benefit payment. But this might not be the case if they were aware of their ill-health and their pension scheme allowed them to take benefits, possibly all of them, early.

Where a person dies after retirement, there is most likely to be a lump sum death benefit where the deceased had a personal pension, often a self-invested personal pension (SIPP) (IHTM17023), with funds:

  • that had not come into payment (crystallised), or
  • where the funds had been crystallised (with or without a lump sum being paid on commencement of the pension) but minimal drawdown payments had been made.

General wealth

Most people need to use their pension funds when they retire to secure an income for life. A secured pension or annuity usually ceases on death unless there is a limited period, usually 5 or 10 years, when payments are guaranteed to continue. However, people with substantial general wealth often use their pension funds in a more flexible way, taking benefits as and when needed. They will often use other sources of income and capital to live on before drawing on a tax privileged pension fund. A drawdown pension arrangement may have substantial funds remaining on the scheme member’s death.

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Pension scheme type

In general, there is more risk with a personal pension scheme than with an occupational scheme. The large insurance companies, which provide most of the personal pension arrangements in the UK, are well aware of the tax position. They generally tailor their products so that death benefits are paid at the discretion of the scheme trustees or written into trust a so they are not within the estate. However, protected rights are often overlooked and are an area of risk where the date of death was before 6 April 2012. Pension schemes that are small self-administered schemes (SSAS) (IHTM17022) or self-invested personal pensions (SIPP) (IHTM17023), are higher risk than other registered pension schemes. Non-registered schemes, particularly non-UK pension schemes, are higher risk than registered schemes.