Inheritance Tax and Pension Simplification
Sorry to keep bothering you, but thereís stuff on pensions coming out nearly every day at the moment.† Iíve just seen a copy of Her Majesty's†Revenue & Customs (HMRC)†discussion paper on Inheritance Tax (IHT) and Pension Simplification and I thought you ought to know about it.† Itís a subject that comes up all the time in the many seminars I speak at up and down the country and itís something I covered in the BeeLines a few months ago when the Paymaster General, Dawn Primarolo, made a Ministerial Statement on the issues.† Todayís discussion paper follows that statement and sets out in detail what the issues regarding IHT will be in the post A-Day world and invites comments on some of the options†HMRC has.† If you want to re-read the BeeLine from the time of the Ministerial Statement in March you can do that by clicking on the following link:
The paper makes the point that in the past it has been easier to apply the IHT rules as far as pension assets have been concerned because of the relatively few choices people have had, and the limited scope they have had, to alter their behaviour for tax purposes.† This will no longer be the case after A-Day, though, as people will gain far more control over the way their pension savings are applied.† With this coming increase in personal control, of course, there has been much speculation about the way the IHT rules will be applied and the possibilities it might open up for people as far as tax-planning is concerned.
HMRC's paper acknowledges this, but points out that they will not be able to make the simple assumptions in taxpayersí favour that have underpinned their practice to date.† What they are looking to do after this consultation exercise is to be able to come up with a straightforward replacement of that current practice which is ďboth consistent with the letter of current IHT law and gives IHT certainty to scheme members and their advisers, and ultimately those dealing with the IHT after a memberís death.Ē
Clearly, in the post A-Day environment where people will no longer be required to buy annuities with their pension savings even after the age of 75 if they go down the alternatively secured pension (ASP)†route,†it will become more and more likely that some will die with unspent pension pots.† In some cases that will be because a personís death may be unexpected, but in others it could be that they never intended to spend their pension savings on an annuity while they were alive.† It is clear to me that these two extreme positions, are not the problem, rather it is the grey areas in between that are going to be so hard to advise people on. Thatís what this document is all about and it really should be read by everyone involved in advising on pension issues in the run up to A-Day and beyond.† Advisers may even wish to make representations to HMRC before the closing date of 30th September.† You can get hold of a downloadable copy of the Discussion Paper (itís only 9 pages long) by clicking on the following link:
The bottom line is that even though the pension tax laws are being freed up considerably Ministers still see the purpose of tax-relieved pension savings as being the means to purchase a lifetime annuity, not the building up of capital.† The general principles of the Inheritance Tax Act 1984 arenít being thrown away as part of the introduction of the new pensions regime.† That was never on the cards.
22 July 2005
This information is based on our understanding of the†paper issued by HMRC on 21 July 2005 entitled "Discussion paper on Inheritance Tax (IHT) and Pensions Simplification".