What’s the IHT position on final salary transfers?
Posted: 06/03/2017 09:46:19 by
Global Administrator | with 0 comments
What is the inheritance tax position on final salary transfers, especially if the transfer is driven by the desire for better death benefits and the customer is in relatively poor health?
The main point that HM Revenue & Customs (HMRC) will look at is transfers within two years of death. HMRC has determined that in many circumstances people have transferred benefits as they approach death for no other reason than to enhance the death benefits available (for example, a final salary scheme may only offer a spouse’s 50% annuity whereas a personal pension may offer a full return of fund). In HMRC’s view this may deprive them of funds which may end up within the client’s (or their spouse’s) estate.
If the individual dies within two years of making a transfer, the executors are required to report this to HMRC. At that point, the customer’s health (and their knowledge of it) when they made the transfer becomes relevant.
If the person was in normal health, HMRC deems there to be no loss to the estate. However, if the person knew they were seriously ill when the transfer took place (expecting to live for less than two years) then an inheritance tax charge (IHT) charge can arise.
There are many reasons why people consider transferring from a final salary scheme. If death benefits are a key driver due to the ill health of the member, being aware of the IHT position is crucial.
Please note this message is for information only and does not constitute advice.
If you require advice then please contact Sue Stevens at firstname.lastname@example.org or a colleague, who will be happy to assist you.