# IHTM43050 - Interaction with alternatively secured pensions: calculation of recapture charge on scheme member’s death and TNRB where spouse’s death triggers the recapture charge.

Having established the nil rate band to be applied to the recapture charge, the next step is to work out the

• amount of the ASP fund that is in charge, and
• extent to which the unused nil rate band is available for transfer.

## Example from IHTM43049 continued

The value on which the recapture charge will be calculated now follows the calculation set out in IHTA84/S151A, although IHTA84/S151BA(1) specifies that the amount of the fund in charge under IHTA84/S151B(3) is the relevant amount for the purposes of IHTA84/S151A(2). So the chargeable transfer for the purposes of the recapture charge is the chargeable estate on Jason’s death plus the value of the ASP fund at Helen’s death

180,000 + 480,000 = 660,000

However, in order to reflect the UP charge that will be levied on the ASP funds IHTA84/S151A(4B) applies the provisions of IHTA84/S151A(4C); but only where the maximum amount that could have been transferred on Jason’s death at nil percent, as reduced at IHTM43049, exceeds that aggregate chargeable transfer after deducting the ASP fund where that fund has not been subject to a UP charge.

In this example, the maximum amount that could have been transferred on Jason’s death, as adjusted, is £310,000. This exceeds the aggregate chargeable transfer less the ASP fund (as this has not been subject to a UP charge) of £180,000, so the provisions of IHTA84/S151A(4C) are in point.

The effect of these provisions is to adjust the nil rate band maximum available to the ASP charge to reflect the fact that the ASP funds may suffer income tax of up to 70%. The calculation is

(UNRB x100) ÷ (100 - MUPR)

where

• UNRB is the unused nil rate band calculated under IHTA84/S151A(4B) - in this example £310,000 - £180,000 = £130,000, and
• MUPR is the maximum unauthorised payment rate that can apply. This is 70% whether or not the ASP fund actually bears income tax at 70%.

So in this example, the unused nil rate band is increased as follows

(130,000 x 100) ÷ (100 -70) = £433,334.

The tax due on the ASP is then calculated as follows

(660,000 - 433,334) x 40% = £90,666.40

In order to assess the case on COMPASS, you should include £480,000 as the capital value of the fund and show a reduction to that capital value reflect the difference between the nil rate band that COMPASS will apply (£325,000) and the increased nil rate band £433,334 - in this case £108,334. Include the chargeable value of the estate on death as the equivalent of a previous cumulative total.

The final stage is to establish to what extent there is any nil rate band to transfer to Helen’s estate. Logic suggests that as a tax charge has arisen on the ASP fund, there can be no nil rate band to transfer and this is confirmed by the legislation.

Where the survivor did not die before the ASP charge arose, the percentage referred to in IHTA84/S8A(3) is adjusted under IHTA84/S151BA(11). The formula to use is contained in IHTA84/S151BA(12) and is

AE ÷ ANRBM x 100

where

• AE is the adjusted excess; that is the amount by which M would be greater than VT [IHTM43020], where
• M = ANRBM which is the nil rate band maximum as adjusted under IHTA84/S151BA(6) or £310,000 (see IHTM 43049), and
• VT = the chargeable value of the transfer on death, including the taxable ASP fund or £660,000

So in this case, as M is not greater than VT, AE is negative and so there is no unused nil rate band to transfer. See IHTM43052 for an example where there is still some nil rate band to transfer.

Note - had the ASP fund been subject to a UP charge, the net value in charge would have been £144,000 (£480,000 - 70%). Adding this to the estate on death give an aggregate chargeable transfer of £324,000, which exceeds the restricted nil rate band and gives rise to an IHT liability of £5,600, so there is nothing left to transfer. To assess the case on COMPASS, you will need to increase the value of the fund in charge by the difference between the nil rate band that COMPASS will apply (£325,000) and the restricted nil rate band £310,000.