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HMRC internal manual

Inheritance Tax Manual

Pensions: relevant property charges: identity of the settlor

The settlor of a discretionary trust created to receive death benefits paid from a pension scheme is the pension scheme member.

Property settled on the trusts of an employer-financed retirement benefit scheme (EFRBS) (IHTM17027) on or after 6 April 2006 is treated in the same way as settled property in any other discretionary trust. So it is liable to the ten-year anniversary charge and exit charges (IHTM04096). In this case the scheme member is a settlor for Inheritance Tax (IHT) purposes. This applies to:

  • contributions made by the member as an individual, and
  • contributions made by their employer (even where this is non-contributory for the employee (member) and is wholly financed by the employer). This is because pension rights and benefits are derived from payments by the employer as deferred or delayed remuneration for the employee’s current work. This principle was established in Parry v Cleaver [169] 1AER 555 and The Halcyon Skies [1976] 1 AER 856

In this way, the scheme member has provided funds directly or indirectly and is the settlor for IHT purposes.