Chapter IHTM17103
| Published date | 20 March 2016 |
| Record Number | IHTM17103 |
| Court | HM Revenue & Customs |
In June 1999 the Association of British insurers (ABI) (after discussion with HMRC Inheritance Tax) issued a guidance note setting out the basis on which a claim to Inheritance Tax might arise. The text of the guidance note is as follows:
1. Introduction1.1 This paper sets out the conclusions reached in discussions and correspondence between ABI and the Capital Taxes Office on the Inheritance Tax position regarding the deferral of annuity purchase/income withdrawal facility under personal pensions.
1.2 While there will be cases where there is an Inheritance Tax liability, these are likely to be relatively few. The circumstances in which a claim might arise are described in the following sections of this note. Some brief comments are also included in section 5 on the Inheritance Tax position in other circumstances, i.e. where an earmarking order has been made on divorce or dissolution of a civil partnership, under the proposed AVC flexibility arrangements, where there are benefits under an approved scheme, where a death benefit is assigned while the member is in ill health and in respect of phased retirement.
2. Background2.1 The legislation covering Inheritance Tax is contained in the Inheritance Tax Act 1984 (‘the Act’). There are two sections of the Act under which claims might arise in respect of retirement benefits: IHTA84/S5 (2) , as extended by IHTA84/S151 (4) , and IHTA84/S3 (3).
Section 5(2)2.2 Section 5(2), as amended, applies where the member has a ‘general power’ to dispose of the benefits. (‘General power’ means a power enabling the person by whom it is exercisable to dispose as he/she thinks fit). Paragraph 4.1 sets out an example of how a general power can arise in relation to income withdrawal.
Section 3(32.3 A claim may arise under section 3(3) where holders of personal pensions or retirement annuities (or exceptionally occupational scheme members) do not elect to take their benefits before they die (but after they are able to take retirement benefits, e.g. the holder has attained age 50). In certain limited circumstances we might take the view that the failure to exercise the right before death gives rise to a lifetime charge to Inheritance Tax under section 3(3). These circumstances were described in an article in HMRC’s Tax Bulletin of February 1992, following discussions between ABI and this office, but the point was also made that we expected to see very few cases where a claim would even be considered. A copy of the article is annexed to this paper.
2.4 During the recent discussions ABI argued that income withdrawal was a direct alternative to annuity purchase and so electing the income withdrawal option should not carry any Inheritance Tax implications which do not apply where an annuity has been bought. We do not accept this argument. They point out that after the death of a member...
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