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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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Pensions: other provisions: lifetime transfers

The lifetime transfers that can arise as a consequence of income drawdown are:

When a scheme member initially opts for income drawdown

This will normally be for commercial and retirement planning reasons (described as a ‘genuine pension arrangement’ in the Tax Bulletin (IHTM17501). If however the scheme member is in ill health when they opt for income drawdown then an omission within IHTA84/S3 (3) may arise. The scheme member is unlikely to survive to take their full retirement benefits and as a result the balance of the pension fund will be paid outside their estate.

If the member survives for a period of more than 2 years from the date income drawdown started it is assumed (in the absence of evidence to the contrary) that they were in normal health at the time. Ill health in this context is the same as in the Tax Bulletin - terminally ill or such poor health that the member’s life is uninsurable.

Reduction in level of drawdown whilst in ill health

Where ill health intervenes and the member reduces their level of income drawdown, this has the effect of increasing the value of the pension fund paid to others on the death and is not a ‘genuine pension arrangement’ for the member

Any case where these situations seem to apply should be referred to Technical,.

The Tax Bulletin concessions will apply where appropriate (for example, where payment is made to a spouse or civil partner (IHTM11032) or financial dependent).