Managing trusts and tax

Inheritance Tax and the pension transfer window

Following a recent reform, if a client makes a transfer into the pension plan whilst aware they are suffering from a terminal illness or, to a certain degree, ill heath, it is extremely likely that HMRC will challenge the tax free status of the death benefits if the client dies within two years of the transfer.

The revenue will assess such transfers on a case by case basis.  This can lead to lengthy negotiations with the revenue as well as the possibility of an additional IHT charge.

Case study

In a recent matter, we were acting for an estate where transfers were made into a SIPP pension within a year of the date of death.  The total transfers into the pension exceeded £600,000 leaving a potential IHT charge of £240,000.

The deceased had previously suffered from cancer although at the time the transfers were made was in reasonably good health.  The transfers were made to give the client more flexibility over their pension arrangements and were not made because the client was aware of her life expectancy.  The client died within a year of making these transfers.

With our assistance the executors of the estate were able to put in a full and successful argument at the outset to HMRC and the death benefits were paid without an IHT charge and without delay.

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