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HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
Updated
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Pensions: Scheme pensions and lifetime annuities: tax charges

There are already existing rules to prevent the abuse of pension tax relief from Income Tax through members surrendering rights under Registered Pension Schemes during their lifetime or through the reallocation of assets after a members death in certain circumstances. These anti avoidance rules are now extended:

  • to impose Income Tax unauthorised payment charges when the member surrenders rights to payments under a lifetime annuity or dependant’s annuity, and
  • to impose unauthorised payments charges when a member, who has rights to:

    • a scheme pension,
    • a lifetime annuity,
    • a dependant’s scheme pension, or
    • a dependant’s annuity,

dies and a connected person becomes entitled to an increase in their pension rights under the scheme that is attributable to that death.

and, so far as Inheritance Tax is concerned, with effect from 6 April 2008:

  • to impose an Inheritance Tax charge where a member with:

    • a scheme pension,
    • a lifetime annuity,
    • a dependant’s scheme pension, or
    • a dependant’s lifetime annuity,

dies over age 75 and there is an increase in pension rights attributable to the death of the member or an unauthorised lump sum payment in respect of the deceased’s pension scheme arrangement.

The Income Tax and Inheritance Tax charges on re-allocations of rights after a member has died do not apply where the scheme has 20 or more members and the increases in rights are applied at the same rate for each member.