IHTM17126 - IHT charges on pension schemes as
settled property: the ten-year charge where death benefits are
settled on discretionary trusts
Where the death benefit (
IHTM17030)
- is payable under the scheme rules to the
member or their estate (in other words, where there is no initial
discretionary trust under the scheme rules), and
- it is then settled by the member during
their lifetime or by their will (
IHTM12041)
the first ten-year charge after death is calculated from the
date the member set up the trust.
Where however the death benefits
- are held on discretionary trusts from the
start, and
- on the deceased's death they are paid to a
new discretionary trust
they are effectively moving from one discretionary trust (the
original pension scheme) to another discretionary trust (the
recipient discretionary trust). In this instance IHTA84/S81 applies
for setting the date of the ten-year charge. Under s.81 the date
for the ten-year charge is the date the member first joined the
original pension scheme. Although treated as remaining in the
original discretionary trusts for ten-year charge purposes the
funds are held on the trusts of the recipient settlement for all
other purposes.
Example
- X becomes a member of a pension scheme on
15th May 1964; the death benefits are to be paid under the trustees
discretion; this therefore is the initial discretionary trust
- X sets up a (new) discretionary trust on 2
March 1998 to receive the death benefits
- X dies 3 January 2000
- The death benefit is paid to the new trust
under the trustee’s discretion on 4 September 2000
No Inheritance Tax charge arises at this stage (
IHTM17123) in view of IHTA84/S151 and
IHTA84/S58 ; but the property becomes ‘relevant
property’ at this point
X is deemed (
IHTM17125) to be the settlor of the
funds in the pension scheme and s.81 applies so that the ten-year
charges for the new recipient trust arise on 15 May 1984, 15 May
1994 and 15 May 2004
- The 15 May 1984 and 15 May 1994 ten-year
charges would be nil as the death benefits were not relevant
property at that time
- The death benefits became relevant
property on 4 September 2000 - this would be reflected in the rate
of tax under IHTA84/S66 (2) for the 15 May 2004 ten- year
charge
