IHTM17001 - Pensions: introduction

With an ever increasing number of people living for a substantial number of years after retiring from work financial planning in the form of pensions has become a very important issue for most working people. To cater for the pension needs of different individuals and their personal circumstances there are a variety of types of pension scheme (IHTM17020).

Successive governments have been aware of these issues and have encouraged individuals to provide for their own retirement, rather than relying solely on the State Pension. They have done this by giving considerable tax concessions which have made pension packages financially attractive.

Today there is a comprehensive system of tax reliefs applying for pension arrangements ‘approved’ by HMRC under the Taxes Acts. In particular, contributions to the scheme by the member and/or the sponsoring employees are tax deductible. The scheme investment income and CGT build up are tax-free and part of the benefits can be paid as a tax-free lump sum.

However the Inheritance Tax legislation does not provide a blanket exemption for pension scheme benefits whether payable under approved or unapproved schemes. There are some specific reliefs, for example, where the conditions under IHTA84/S151apply (IHTM17121). There are also concessions, for example, see the Tax Bulletin at (IHTM17092). But in other cases IHT will be due in the normal way.

The tax rules for pensions were significantly changed on 6 April 2006 (the Appointed Day or ‘A Day’) when new simplified rules came into force. A single set of rules now applies to regulate the tax treatment of all UK Registered Pension Schemes. The guidance in this chapter deals separately with the IHT charges and processes that apply to pensions: before 6 April 2006(IHTM17001 to IHTM17154), and on or after 6 April 2006 (IHTM17300 to IHTM17600).