I have been asked to advise a widow who is moving back to the UK from Canada. She will be domiciled in the UK but has a money purchase pension arrangement in Canada, with the death benefits (the residual fund) nominated to her adult children.
Will the death benefits on her overseas pension fund form part of her taxable estate upon death, assuming she is UK domiciled at date of death?
Thank you.
Dear Robin,
Canada does not have inheritance / estate tax, but be careful of capital gains tax issues that might arise. Canada does have tax treaties with the UK to avoid double taxation, and HMRC seem to be quite good at accepting that it is wrong for double taxes to be paid on the same underlying assets. Therefore if any Canadian taxes are payable on death (which seems doubtful in this particular case) HMRC will permit you to offset any Canadian taxes against any UK inheritance tax that might be payable.
Obviously Canadian professional advice needs to be taken as to your particular situation.
Different Provinces have different local filing & disclosure requirements, and you may find that the Company paying the pension or local Provincial Government may require the UK Grant to be resealed in the local Province concerned. For example, in Ontario you also in addition to resealing the UK Grant, have to file a detailed tax return with the Ontario Government within 90 days of completing the underlying transaction.
Yours sincerely
Peter Double / Probate Resealing Services.
The Canadian pension scheme may well be a Qualifying Non-UK Pension Scheme (QNUPS) in which case it receives the same Inheritance Tax treatment as a UK registered pension scheme.
Further information is available at IHTM17025.
If it is a QNUPS as Gerry says, I believe the only remaining risk of IHT is if the pension scheme gives the member the power to make binding designations of beneficiaries (not merely the power to make an expression of wish) in which case it will fall foul of s.5(2) IHTA (read in conjunction with s.151(4).
In other words, if the adult children are entitled as of right to the pension fund and the pension trustee has no discretion in the matter, it is likely to be taxable to IHT (or if the designation was irrevocable at the time it was made, it would be a PET at that time)