| ext"> UK Personal Pensions can fall into two camps | | | | All Pensions will have a normal retirement age of |
| with regard to death benefits which are largely | | | | anything from 55 years to 75 years old. The majority |
| determined pre and post retirement. | | | | will be age 60 yrs or 65 yrs at which point a |
| 1. Un-crystallised funds (where tax free cash and/or | | | | retirement benefits illustration is issued by the Pension |
| income has not been taken). | | | | Company or Trustee. |
| 100% of the fund within the lifetime allowance can be | | | | HMRC have argued successfully that if you defer |
| paid as a lump sum to beneficiaries and with an | | | | taking retirement benefits beyond the stated |
| appropriate Trust can be paid prior to probate and | | | | retirement age then a transfer of value has taken |
| outside the estate for Inheritance tax purposes (read | | | | place. |
| on!). | | | | The successful HMRC argument is that by failing to |
| 2. Crystallised benefits (where cash and/or income has | | | | take pension benefits (tax free cash and an annuity or |
| or is being drawn). | | | | unsecured pension) the value of assets in the |
| If the crystallised fund is an unsecured pension (income | | | | discretionary trust appointing death benefits has been |
| drawdown) then on death the members fund can be | | | | increased. |
| paid to beneficiaries minus a 35% tax charge. Or if | | | | The judge concluded that the pension holder had a |
| post age 75 years on death, a 70% tax charge is | | | | valuable right and by not exercising that right at normal |
| made and the residual fund passes into the estate and | | | | retirement age it allowed the whole value to be |
| can be chargeable to inheritance tax. Commonly a tax | | | | exempt from the estate. The estate was therefore |
| charge of 82% is quoted in these circumstances. | | | | diminished and the condition for the application of |
| A worrying complex court case for many has a | | | | Section 3 (3) IHTA 1984 had been fulfilled. |
| previously unforeseen consequence! | | | | The taxable value was discounted by the judge after |
| Fryer & Others vs. HMRC released on 17th February | | | | taking actuarial evidence but this still left over 60% of |
| 2010 has created a dilemma for those deferring taking | | | | the fund subject to inheritance tax. |
| pension benefits post the pension normal retirement | | | | Interestingly there was no deliberate tax planning |
| age. | | | | strategy merely the Pension holder did not need the |
| People who decide not to take Pension benefits at | | | | benefits. |
| normal retirement age thought they had the comfort of | | | | QROPS (Qualifying recognised Overseas Pension |
| knowing until age 75 years the UK pension fund can | | | | Schemes) and QNUPS (Qualifying Non UK Pension |
| be left and 100% will be paid to beneficiaries on death - | | | | Schemes) have seen recent legislation specifically |
| an attractive planning tool. | | | | clarifying exemption from UK Inheritance Tax. |
| HMRC’s view appears to be different. | | | | |