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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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Pensions: treatment of alternatively secured pensions from 6 April 2007: example where UP charge paid first on part of ASP funds but some NRB unused

The scheme member dies and leaves an estate of £270,000. The IHT NRB is £300,000 and the value of the funds in their ASP is £200,000. Before the IHT on the death estate becomes due (on the last day of the sixth month after the member died), £20,000 of the funds in the ASP has been paid out and attracted a UP charge of 55%. This will require two separate calculations.

Firstly, the net value of the ASP funds paid out should be calculated. This will be £20,000 - £11,000 = £9,000. IHT can then be charged in a normal top slice calculation as shown in IHTM17409. Here, when the net value of the ASP funds are added to the estate on death, the total is £279,000 which is still less than the NRB so there is no IHT to pay on this payment.

Then, the balance of the ASP funds not paid out must be charged to tax. The balance of the NRB (£21,000) must be grossed up using the formula in IHTM17407 (note that it is still grossed up at 70% even though the UP charge is at 40% with a scheme sanction charge at 15%); the result is £70,000. When deducted from the remaining ASP funds, this leaves £110,000 in charge and therefore an IHT liability of £44,000. To get COMPASS to produce the right result, you should:

  • add a new entry to the case record,
  • select the ‘stats’ title ‘ASP fund chargeable from 6 April 2007’
  • include the value of the ASP after deducting the grossed up NRB at £110,000
  • include the NRB in the ‘Aggregate chargeable estate’ box.

As at (IHTM17408), you should write to the scheme administrator to explain the figures included on the calculation.