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BeeHive  >  BeeLines  >  Government statement on IHT and Pensions

Government statement on IHT and Pensions

Ever since the new A-Day tax regime for pensions has been talked about there has been loads of speculation about the possibilities for some people of using pension vehicles to avoid the payment of Inheritance Tax (IHT).  Regular BeeLiners will know that I have always been of the view that this would not be allowed, even though a strict reading of the new tax laws seems to imply that it will be possible.  This has become a big issue in the industry and speculation on the various possibilities that may become available next year has been a constant story in the trade press.

The Government has taken a step towards clarifying the position with pensions and IHT avoidance in the form of a written Ministerial Statement from the Paymaster General, the Rt. Hon Dawn Primarolo.  In the statement, the Treasury’s overall approach to IHT avoidance is outlined pretty well and we are told that there will be more consultation soon on this aspect of the new pensions laws.

The following is a copy of the text of the Ministerial Statement from the other day’s Hansard and I think it sets out clearly what the Government’s view on this issue is and will, I’m sure, end all speculation on the topic:

“We have been asked to clarify how inheritance tax (IHT) will apply to choices made by pension scheme members under the new simplified pension regime, and in particular what the implications are when scheme members opt for an alternative secured pension rather than taking an annuity at age 75 as they have been obliged to do in the past.

The same broad principles will continue to apply to the new regime as they have done to the old rules, and as they do to any other situation where people are able to make choices affecting their future wealth and that of others.

People are broadly treated as making a taxable transfer for IHT purposes when they omit to increase their own wealth in favour of increased wealth for others, just as they are when they transfer to others wealth that they already have. This is a principle of general application, and has always applied to choices under pension schemes as it has to any other choices that people make about their wealth. It is important that we maintain this principle, both in the interests of fairness between taxpayers and to ensure that pension funds remain dedicated primarily to providing retirement income.

The Inland Revenue published a statement of practice in 1992 setting out when IHT would be applied to choices made under the pension rules in force at that time. A new and wider range of choices will be available under the simplified regime, and that statement will no longer be valid. Treatment broadly comparable to that in the statement may remain appropriate in some situations, but in others that is clearly no longer so.

I have asked the Revenue to open discussions with interested parties to seek a consensus on the detailed application of IHT law to the new situations arising under the simplified regime, and on how in practice cases which are chargeable should be identified and any charge should be quantified. The Revenue will shortly be publishing a consultation document setting out their analysis of the IHT issues as a basis for these discussions.

ASPs were designed to provide an alternative to annuitisation for those with religious objections to risk pooling. They were not meant as a vehicle for inter-generational transfers by scheme members generally, and the Government will continue to monitor the situation to ensure that they are not being used for avoidance.”*

So, there you have it.  It doesn’t look to me that the outcome is in question any more.

Steve Bee

23 March 2005

All information included has been produced by us for our own purposes and the results of it are being made available only incidentally.

*Source: Hansard:

Written Ministerial Statement: 21 March 2005