RPSM04106061 - Technical pages: Taxation: Inheritance tax and unauthorised payment tax charges on alternatively secured pension funds and dependants' alternatively secured pension funds
This guidance only applies to individuals who died before 6 April 2011. If the member reached age 75 between 22 June 2010 and 5 April 2011 you should also see RPSM17100070.
For deaths or omissions to exercise pension rights that occur on or after 6 April 2011 see guidance in the Inheritance Tax Manual at IHTM17000.
Death on or after 6 April 2007: Example where tax charges are due in respect of both inheritance tax and an unauthorised payment in relation to remaining dependants’ alternatively secured pension funds after the death of a dependant where the member also died after age of 75
Following on from the example in RPSM04106060.
Ian’s dependant dies 1st May 2008, over age 75, still entitled to benefits in relation to the alternatively secured pension funds that were left on Ian’s death.
The value of Ian’s dependants’ alternatively secured pension funds immediately before the death of Ian’s dependant is £295,000. (These funds, in effect, represent Ian’s own alternatively secured pension fund that Ian’s dependant inherited on Ian’s death.)
Ian’s dependant had no other dependant benefit rights under any registered pension scheme.
The scheme administrator sends an account of the remaining funds of £295,000 in relation to Ian’s estate to HMRC Inheritance Tax using forms IHT100 and IHT100g; the deadline for submitting the forms being 12 months after the end of the month in which Ian’s dependant died. The full amount of the remaining ASP funds are returned as no payment has been made out of the funds since the death of Ian’s dependant.
The value of Ian’s chargeable estate for inheritance tax purposes, excluding the remaining alternatively secured pension funds at the date of Ian’s death, was £300,000. This value is now set against the inheritance tax ‘nil-rate band’ for the tax year in which Ian’s dependant died; being £312,000 for 2008/2009. There is a balance of unused nil-rate band of £12,000 (£312,000 less that part of Ian’s chargeable estate, £300,000, not including the remaining alternatively secured pension funds).
The dependants’ alternatively secured pension funds remaining at the death of Ian’s dependant are then considered by HMRC Inheritance Tax to determine whether or not any inheritance tax is due in respect of those remaining funds in relation to Ian’s chargeable estate (not the chargeable estate of Ian’s dependant).
First, the remaining nil-rate band is ‘grossed up’ as no tax under Part 4 of Finance Act 2004 has been paid in respect of the remaining dependants’ alternatively secured pension funds. The grossed up remaining nil-rate band is £40,000. (RPSM04106030 explains how the nil-rate band is grossed up.)
After allowing for the grossed up remaining nil-rate band, inheritance tax is due in respect of £255,000 worth of the dependants’ alternatively secured pension funds that remained at the death of Ian’ dependant (£295,000 - £40,000).
HMRC Inheritance Tax issues an inheritance tax calculation of £102,000 (£255,000 x 40%) to the scheme administrator.
The inheritance tax liability of the scheme administrator is met out of the remaining dependants’ alternatively secured pension funds and the liability is due by 30 November 2008.
Once the inheritance tax position is settled the balance of the remaining dependants’ alternatively secured pension funds is paid out of the scheme as an unauthorised member payment. RPSM04106031 gives an example of the tax charges that would apply to such an unauthorised payment.
