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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: amendments to IHTA84/S151A-C

The Finance Act 2007 made several amendments to IHTA84/S151A-C in relation to deaths and cases where scheme administrators became aware of deaths occurring on or after 6 April 2007.

Treating ASP funds as any other assets making up someone’s estate when they die was replaced with the rule that ASP funds are to be treated as the top slice of their estate. The value of an ASP taken into account for IHT is reduced by any income tax that arises from unauthorised payments pension tax charges and is charged before the IHT charge becomes due. That income tax is the income tax which arose after the member’s death but before IHT was charged in relation to unauthorised member payments in respect of ASP.

Where there is an ASP that hasn’t previously given rise to a tax charge and the value, net of the ASP, of the estate left by the deceased is less than the amount of IHT nil rate band that is available to set against the value of their estate, IHTA84/S151A(4B) specifies the circumstances when IHTA84/S151A(4C) should apply to ‘gross up’ the unused nil rate band.

The formula grosses up the unused nil rate band by reference to the maximum rate of tax that can apply to ‘unauthorised member payments.’

Definitions are contained in IHTA84/S151A(5) of

  • ‘previously untaxed alternatively secured pension fund amount’ which is that part of a person’s ASP that has not given rise to an unauthorised payments charge before IHT arises on the ASP
  • ‘relevant dependant’, which is a dependant within the meaning of FA04/Sch29/Para15, who is a registered pension scheme member’s spouse or civil partner immediately before their death or is then financially dependent on that person.

This subsection also clarifies that other terms used in IHTA84/S151A have the same meanings as in various provisions in the FA 2004.

Where the scheme administrator is unable to trace a scheme member, IHTA84/S151A(6) provides that the rules in IHTA84/s151A apply to a scheme member who died with funds in a pension scheme which would have been an ASP had the scheme administrator been able to trace them by the time they reached 75, (IHTM17450) and the date when the scheme administrator becomes aware of the scheme member’s death is substituted for the dates in IHTA84/s151A(3)(a)and (b).

Changes were made to IHTA1984/S151B(1)(b) so that it applies to people who did not have an ASP on reaching 75 because the scheme administrators could not trace them at that time .

IHTA84/S151BA replaces the provisions that specifically applied to calculate the charge under IHTA84/S151B (over age 75) so that the charge under IHTA84/S151B is calculated in the same way as the charge under IHTA84/S151A but subject to particular modifications so that

  • the rate(s) at which IHT is to be charged is to be determined by reference to the date when tax is charged under IHTA84/S151B, IHTA84/S151BA(3) and
  • the nil rate band and rate of tax to apply are the rates of IHT that were in force at the date of the death of the relevant dependant, IHTA84/S151BA(4)&(5).

Where a charge arises under IHTA/S151C provision is made to avoid a double charge with IHTA/S151A (IHTM17414).

The charge that can arise when left over funds from an ASP are paid out will interact with the transferable nil-rate band IHTA84/S8A. The calculation is contained in FA08/S151BA(6)-(12) and there is an example at IHTM43052.