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HMRC internal manual

Inheritance Tax Manual

Pensions: omission to exercise a right: introduction

In most pension schemes the scheme member has the right, at a specified age or specified minimum age, to take retirement benefits. Where a scheme member does not take the benefits to which they are entitled, either wholly or partly, and has still not done so before they die, so that death benefits become payable, the omission to take the retirement benefits may be treated as a lifetime transfer under IHTA84/S3(3) (IHTM14810). This can only apply to unsecured funds and the estate of another person or of settled property must increase as a result of the omission.

In the period before 6 April 2006, the circumstances where a charge would be considered was the subject of Inheritance Tax practice and this contained an element of concessionary treatment (IHTM17101). For deaths on and after 6 April 2006, statutory relieving provisions relating to registered pension schemes were introduced in IHTA84/S12(2A-G). These provisions superseded the previous IHT practice for most situations (but see IHTM17304 where income drawdown began whilst the scheme member was in ill-health). These provisions were repealed with effect from 6 April 2011 and the current position is that IHTA84/S12(2ZA) specifically prevents IHTA84/S3(3) from applying to:

The charge can still apply to employer-financed retirement benefit schemes (EFRBS).

In any situation where a death is between 6 April 2006 and 5 April 2011 but the provisions in IHTA84/S12 (2A-G) do not apply, the position as it was before 6 April 2006 may still apply in line with HMRC practice at the time (IHTM17101).