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HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
Updated
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Pensions: examining form IHT409: boxes 17 to 24

Most lump sum death benefits are not chargeable to Inheritance Tax. This can provide an opportunity for people in ill-health to use pension schemes to pass value to chargeable beneficiaries without a tax charge. There is a risk even if the estate is spouse or civil partner exempt, as it involves lifetime transfers of value. Other indications of tax planning such as a recent Will, power of attorney or gifts or evidence of ill-health in the 2 years before death may alert you to this possibility.

Where there is evidence of any transfers, disposals, other changes or additional contributions made to a pension, you should make the following enquiries:

Transfers

Obtain details of;

  • the old and the new scheme (provider and contract/policy number),
  • the value of the funds transferred, and
  • an indication of the deceased’s state of health at the time.

Disposals

This will mainly involve death benefits being written into trust. You should obtain:

  • the value of the funds,
  • details of any benefits being taken at the time, and
  • an indication of the deceased’s state of health at the time.

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Changes

This includes any other change in the benefits being taken in the 2 years before death. You should obtain:

  • details of the scheme, details of the benefits being taken, and
  • an indication of the deceased’s state of health at the time.

Sometimes changes will be reported that are not of interest to us, for example a normal retirement. You will need to use your judgement to identify the potential lifetime transfers.

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Contributions

If the contributions are substantial and unusual (they are not made under regular arrangements that have been in existence for more than 2 years), obtain:

  • details of the scheme,
  • the dates and amounts of contributions into the scheme, and
  • an indication of the deceased’s state of health at the time.

You may need to look at the member’s and employers’ contributions over a longer period (say 5 years), to establish the pattern and identify any potential lifetime transfers in the 2 years before death.

Arguments about lifetime transfers are difficult and, in all cases, you will need advice from Technical and the Board’s Actuarial Officer once all the details are known.

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Deceased’s state of health

You should ask for medical evidence by issuing SEES letter SL185.

If we need to see any medical evidence or records we will ask the taxpayer or agent to send this directly to the Board’s Actuarial Officer (BAO). However, sometimes this may be sent to the caseworker dealing with file, by mistake. If you receive any medical evidence in error you must treat it as confidential. You must take the evidence or records to the nominated person for your location. The nominated person will arrange for the information to be scanned and sent securely to the BAO. Then they will pass the records back to the caseworker. The caseworker must ask the taxpayer or agent whether they want the information to be

  • returned to them,
  • or disposed of securely,

and then deal with it according to the taxpayer or agent’s wishes.

If the information is too bulky to scan the nominated person will contact the Data Security Officer who will arrange for it to be taken to the BAO by another secure method.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)