Pensions: IHT Charges: protected rights up to 6 April 2012
Protected rights are not relevant where a death is on or after 6 April 2012. After this date, any protected rights pension funds are payable in the same way as any other pension funds.
Before 6 April 2012, there were restrictions on the payment of protected rights pension funds and these could form part of the estate.
Protected rights are derived from a pension scheme which is contracted out of the second state pension S2P (or, previously, the state earnings related pension scheme SERPS). Contracting out means that the member gives up state benefits under S2P or SERPS, in exchange for payments by the Government into the contracted-out scheme. These payments constitute the protected rights fund which is ring-fenced and can only be paid out in certain prescribed ways.
Where the member dies, either before taking their retirement benefits or with unsecured pension rights, any protected rights fund must be used to provide benefits for a qualifying spouse, civil partner or other dependants. If there is no qualifying spouse or civil partner or other dependants the cash value of the protected rights may be payable to nominated beneficiaries or the member’s estate. For this reason it will be liable to IHT. The position depends on the precise terms of the scheme rules. The taxpayer or agent should give details on the form IHT409. You can find further guidance at IHTM17057.
Technical can advise on any claims to Inheritance Tax involving protected rights.