The following Trusts and Inheritance Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
A person’s entitlement to a pension is not included in his estate on death, provided that the entitlement ends on death. In addition, investments held in a pension trust are not subject to inheritance tax relevant property charges. These reliefs, which are specific to registered pension schemes, are described in the Relief for pensions guidance note.
However, not all pension rights end on death, and even if no actual death benefits arise, certain other payments or receipts in connection with the deceased’s pension must be considered. The Administration of pension rights on death guidance note describes the death benefits or payments that may arise from different types of pension, and how to deal with them in the course of administering the estate. This guidance note categorises death benefits and payments according to their inheritance tax treatment. Where applicable, the compliance procedure is explained. The Income tax treatment of pensions on death guidance note provides the corresponding explanation for income tax.
The taxation of death benefits has changed significantly in recent years. Major changes to inheritance tax were introduced in FA 2011. Changes to the use of defined contribution schemes were announced in the Budget of 2014, followed by enactment in the Taxation of Pensions Act 2014. Further refinements relating to income tax on death benefits were included in the two Finance Acts of 2015. This guidance note, and its accompanying note on Income tax treatment of pensions on death describes the rules that apply with effect from 6 April 2015. For information on previous arrangements, see Simon’s Taxes, E7.239 and I5.635.
If a member dies before starting to draw a pension, the pension rights are said to be ‘uncrystallised’. If the death occurs when the pension is in payment or after part or all of the fund has been designated to a drawdown fund, the relevant portion becomes ‘crystallised’.
Sums received from a pension
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