I can find lots of useful articles that explain how to calculate the value of ‘retained rights’ and the loss to the estate from a transfer of pension rights 2 years before death whilst in ill health.
However, none of these explain who is liable for the charge when the value exceeds the deceased’s NRB. They all assume that the amount is within any available NRB. So my questions are:
A deceased person has a loss to the estate of £750,000 and no NRB available due to previous gifts. Who is liable for the 40% tax charge? If the entire estate passes to the spouse, is the exemption available?
I think the answer is that the estate is liable and the exemption isn’t available but confirmation and any source in the relevant manuals would be appreciated.
Pension contributions (to one’s own scheme) may be transfers of value if made when the scheme member is in ill health.The assumption is that such contributions are intended to enhance death benefits rather than to benefit the member during his/her lifetime.
This issue is covered in the HMRC inheritance tax manual at IHTM 17043.
Any transfer of value will have been made by the scheme member during lifetime. Any IHT liability will thus fall on the estate.
In most - but not all - pension schemes the death benefits are distributed at the discretion of the scheme administrators and do not form part of the deceased’s estate. In the small minority of schemes where death benefits are payable to the estate spouse exemption is potentially available.
I note your last line in the above reply with regards to the death benefit not forming part of the estate. I have a scenario which you may be able to assist with.
Deceased (D) died whilst in full employment, intestate. A circa £40,000 death in service benefit is payable. No nominations were signed by D and she is survived by three minor children. The eldest child is 18 in July. The pension company had initially requested a grant of letters of administration to be obtained so that payment of the lump sum could be made. They have now said that the may be in a position to pay the lump sum to the eldest daughter. My specific enquiry revolves around the estate itself, which is insolvent. D owed approximately £27,000 on various loans and creditors at the date of her death. Is it possible for these creditors to pursue the death in service benefit? If the eldest daughter is required to take a grant, should the value be recorded in the legal statement? I should mention that I am waiting for specific confirmation from the pension fund as to how it is held and distributed.
My comment that the death benefit was not part of the estate related to inheritance tax.
I am not a lawyer and suggest you take legal advice. The pension company will have in-house lawyers and contacting them might be a good starting point.