IHTM17121 - IHT charges on pension schemes as settled property: approved schemes

Most pension or annuity arrangements are settlements for IHT purposes within the definition at IHTA84/S43 (2) and so it follows that if no special provision were made pensions funds would also be subject to the IHT charges (IHTM04081) on settled property. Pension and annuity rights would be interests in possession (IHTM16061) and a charge on an appropriate amount of the settled property would arise when the interest terminated when the pension or annuity ended. Lump sums payable at the discretion of the trustees would be payable out of relevant property which was liable to the discretionary trust ten year and exit charges in the normal way.

IHTA84/S151 (2) and (3) in conjunction with IHTA84/S58 (1)(d) provides very substantial mitigation of the normal settled property charging provisions for approved (IHTM17020) pension schemes.

Accordingly

• IHTA84/S151 (2) provides that there is no charge against the fund on the death of a person entitled to a pension or annuity which then comes to an end (unless that pension or annuity had arisen from the application of another benefit, typically a lump sum, arising out of the same scheme)
• IHTA84/S151 (3) provides inter alia for a corresponding exclusion from charge when the pension or annuity comes to an end other wise than on death, and
• IHTA84/S58 (1)(d) provides that the funds concerned are not ‘relevant property’ and so are excluded from the ten-yearly and exit charges which might otherwise arise by virtue of IHTA84/S64 and IHTA84/S65