Pensions: relevant property charges: settlement of death benefits
When a payment is made by a pension scheme into a trust set up to receive death benefits, the property is no longer held for the purposes of a pension scheme. It is treated in the same way as any other relevant property and is liable to the ten-year anniversary charge and exit charges (IHTM04096).
Where the pension scheme is itself not trust based (for example it is a retirement annuity contract, and the death benefits are paid into a relevant property trust) the ten-year anniversary is based on the date the trust was set up by the member, either during their lifetime or by their Will.
Where the pension scheme paying the death benefits is a trust based scheme, the funds are moving from one settlement to another and IHTA1984/S81 will apply to determine the date of the 10-year anniversary. In this case, the date for the ten-year anniversary in the receiving trust is based on the date the member first joined the original pension scheme.
- Hilary became a member of a trust based pension scheme on 15 May 1974
- She set up a new discretionary trust on 2 September 2007 with £100 and completed a letter of wishes nominating the trust to receive any death benefits from the pension scheme
- Hilary died on 3 January 2012
- The death benefit is paid at the discretion of the pension scheme trustees to the new trust on 4 August 2012.
The lump sum death benefit is relevant property from the date of payment on 4 August 2012. However, the ten ear anniversary is based on the date Hilary joined the pension scheme on 15 May 1974, so will first apply to these funds on 15 May 2014. The ten-year anniversary charge relating to the initial £100 used to set up the trust is based on the date the trust was set up, so it will first apply on 2 September 2017