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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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Pensions: alternatively secured pensions between 6 April 2006 and 5 April 2007: position on the death of a scheme member

The legislation is contained in IHTA84/S151A and applies where a member of a registered pension scheme has an ASP immediately before their death. The value of the ASP funds is treated as part of the value of the scheme member’s Inheritance Tax chargeable estate. Tax is charged on the ‘relevant amount’ defined in IHT84/S151A(3)(a) & (b) as:

  • the total value of the sums and assets,
  • less the value of those amounts expended on dependant’s benefits within 6 months beginning with the end of the month of the death of the scheme member.

The circumstances where ASP funds are regarded as expended on dependant’s benefits for a relevant dependant are explained in IHTA84/S151A(4) and include

  • a dependant’s scheme pension
  • dependant’s annuity
  • dependant’s unsecured pension
  • dependant’s ASP, or
  • if the funds are paid to a charity as a lump sum death benefit .

The terms used in IHTA84/A151A are defined in IHTA84/S151A(5). All apart from the definition of relevant dependant (IHTM17354) have the same meanings as in FA04/Sch28&29/Part4.


Anna dies aged 80, when the Inheritance Tax nil rate band is £285,000. Her Free Estate is valued at £400,000 and the ASP fund at £600,000 giving a total estate of £1,000,000

Inheritance Tax calculation

Total estate £1,000,000
Less nil rate band £285,000
IHT at 40% £286,000

Tax is apportioned between the Free Estate (£114,400) and the ASP fund (£171,600).

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The immediate charge on Anna’s ASP is payable by the pension scheme administrator (IHTM17353).

Where the ASP fund is paid to the employer the charge under FA04/S207 would be on the net fund after Inheritance Tax which is £600,000 less £171,600 = £428,400.

If the Free Estate of £400,000 includes a business worth £125,000 eligible for 100% Business Property Relief (BPR) the total estate on death becomes £875,000. After deducting the £285,000 nil rate band, tax on £590,000 is £236,000, of which £74,171 is attributable to the Free Estate and £161,829 to the ASP fund. In other words, out of the total tax reduction of £50,000 generated by BPR, the Free Estate benefits by £40,229 and the ASP fund by £9,771. This is a consequence of treating the ASP fund as a component of the IHT estate on death. Although the fund assets themselves will not be eligible for relief (IHTM17370) the fund will benefit from the overall reduction in Inheritance Tax.