IHTM17152 - Divorce or dissolved civil
partnership and pensions: pension earmarking where death benefit
held on discretionary trusts
Where pursuant to the scheme rules the death benefit (
IHTM17030) is held for distribution
among members of a class at the trustees discretion (
IHTM17053) (the member not having
retained a right to direct payment) the Court may, on divorce or
dissolution of a civil partnership (
IHTM11032), direct that the scheme
trustees should hold some or all of the benefit for the former
spouse/civil partner. Where this is the case it is probable that
the ex- spouse/civil partner will have an interest in possession (
IHTM16061) in the whole or part of the
death benefit from the time the Court Order takes effect.
In this situation
- in accordance with general principles the
member will have made a transfer of value (
IHTM04024) when they gave the
discretionary power to the trustees. Assuming that the member was
in good health and could reasonably be expected to live to take the
benefits provided on retirement, the value of the transfer would be
negligible and thus have no IHT consequences
- as the member has already given away their
right to, or control over, the death benefit there is no question
of it being liable to IHT as part of their death estate following
the Court Order
- prior to the Court Order taking effect the
death benefit will be subject to a discretionary trust. It then
represents property which is part of a fund held for the purposes
of a scheme to which IHTA84/S151 applies. On this footing, it is
not ‘relevant property’ - IHTA84/S58 (1)(d) - until the
benefit becomes payable - IHTA84/S58 (2)
- accordingly where the effect of the Court
Order is to terminate the Discretionary Trust and confer an
interest in possession on the ex-spouse or civil partner it will
not give rise to an IHT charge under the Discretionary Trust
code
- when the death benefit becomes payable to
the ex-spouse or civil partner no claim to IHT arises - this is the
enlargement (
IHTM16092) of an interest in possession
(IHTA84/S53 (2))
- should the ex-spouse or civil partner die
before the death benefit is payable their interest in possession
would form an asset of their estate for IHT purposes. However, the
value would be nominal if the member was in good health at the time
and likely to survive to take up their retirement benefits
