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HMRC internal manual

Inheritance Tax Manual

Pensions: omission to exercise a right: calculation of the charge

When there is an omission to exercise a right to take pension benefits, the amount of the deemed disposition derives from the loss to the estate resulting from the failure to take up the available benefits at the latest time these benefits could be taken, which is immediately before the member’s death.

The calculation is based on the value of an annuity guaranteed for 10 years, payable monthly in advance, which the balance of the whole fund would have purchased. The annuity value for this purpose will be based on the drawdown provider’s single life rates, without increases or provision for dependants except to the extent that this is specified in the scheme rules.

Technical and the Board’s Actuarial Officer can advise on any potential liability to IHT under ITA84/S3 (3).