When a
member of a
registered pension scheme dies on, or after,
reaching age 75 with funds remaining in an
alternatively secured pension fund and the death
occurs
before 6 April 2007, it is possible that the
scheme administrator will have to account for
inheritance tax in respect of those remaining funds.
Example
Eric is a member of a registered pension scheme and has an
arrangement under that scheme which provides alternatively secured
pension. Eric has no other pension arrangements in this or any
other registered pension scheme that provide alternatively secured
pension.
Eric dies on 1st June 2006, age 78.
The value of Eric’s alternatively secured pension fund
immediately before death is £600,000.
Eric leaves no
dependants and the remaining alternatively secured
pension funds of £600,000 are not paid as a
charity lump sum death benefit. (Any remaining
alternatively secured pension funds paid as a charity lump sum
death benefit would be exempt from inheritance tax.)
The scheme administrator sends an account of the remaining
funds of £600,000 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 Eric died.
The overall value of Eric’s chargeable estate for
inheritance tax purposes, not including the remaining alternatively
secured pension funds at the date of Eric’s death, is
£1,000,000 giving a total estate of £1,600,000. After
taking into account the inheritance tax ‘nil rate band’
of £285,000 for tax year 2006/07, the amount of Eric’s
estate that is chargeable to inheritance tax is £1,315,000
(£1,600,000 - £285,000). The inheritance payable on the
estate as a whole is £526,000 (40% x £1,315,000) of which
£197,250 (£526,000 x [£600,000/£1,600,000]) is
attributable to the remaining alternatively secured pension funds.
HMRC Inheritance Tax issue an inheritance tax calculation of
£ £197,250 to the scheme administrator
The scheme administrator’s inheritance tax liability is
met out of the remaining alternatively secured pension funds and is
due on 31 December 2006 (6 months after the end of the month in
which Eric died.
The balance of the alternatively secured pension funds after
deduction of the inheritance tax liability are then applied as a
transfer lump sum death benefit.
| Glossary ( RPSM20000000) |
