Members’ Articles

Recently we asked our members if they would like to submit articles of their own choosing to be included in the Solo magazine as we would like to increase engagement with and between our members. Below are a few of the articles received.

Please note that the comments and views contained in these articles are not those of the SPG, but of the individual author.

If you would like to submit an article or comment on any of the articles in Solo, you are welcome to do so. Your submission should be kept to around 600/800 words and the topic would be of your choice. It could be about the area of law you practice in, something interesting you have read, that you would like to share with your fellow members, or a change in the law that you have an opinion on.

You will appreciate that, depending on the number of articles we receive, we cannot guarantee that your article will be included in the next edition. All articles submitted, will be sent to the Editor, who will choose the articles for each edition.

Please send all submissions to info@spg.uk.com

Pension schemes and inheritance and other tax on death

This note is dangerously simplified and is not advice in any circumstances. My bare bones summary of pension tax in Tolley’s Tax Planning takes 25 pages, so the 466 words here merely touches a couple of topics.

Tax and pension schemes registered under Finance Act 2004

The main inducements that can lead to the tax tail wagging the pension dog are (1) tax relief on contributions by members and employers, (2) the exemption from income and capital gains tax on the investment returns of pension funds, and (3) tax-free lump sums. In addition to the popular so-called 25% tax-free lump sum on pension commencement, there are lump sums payable on a member’s death which are free of inheritance tax (“IHT”).

There is no general IHT exemption for pension schemes but a number of specific ones, which means that, in most “normal” cases, no IHT is payable on the death of a member of a registered pension scheme. Age 75 however is a tax watershed.

A “chargeable transfer” is a transfer of value, which is made by an individual but is not an exempt transfer: ITA 1984 s2. Exempt transfers include transfers between spouses and civil partners, annual £3,000 exemption, small gifts, normal expenditure out of income and gifts to registered charities and sports clubs.

Amongst the specific reliefs from IHT in respect of pension schemes are that (1) contributions paid to pension schemes are not transfers of value, (2) property held for the purposes of a registered pension scheme is not relevant property, so it will not be subject to the tax payable every ten years on a discretionary trust or on distribution of capital and (3) property applied at the discretion of the trustees to pay a lump sum on the death of a member, including a payment, usually insured, on death in service, is not relevant property, if it is paid within two years from the day on which the death was first known by the trustees or ought reasonably to have been known by them.

IHT does apply however if a member has a “general power” to dispose of property, which includes power to direct pension scheme trustees how to dispose of it, when he is treated as beneficially entitled to it.

Contributions paid within two years of the member’s death while he was in ill-health and unlikely to survive to take some or all of his benefits, and so increasing the death benefits payable outside his estate, are treated as transfers of value and subject to IHT.

Age 75

Four main consequences of attaining age 75 are that (1) no tax relief is available on contribution to the scheme, (2) the pension fund is tested against the member’s lifetime allowance, (3) the payment of a serious ill-health lump sum becomes liable to income tax, and (4) either (a) a special lump sum death benefit charge of 45% on the payment of death benefits to a non-qualifying person (not an individual or if an individual is a trustee etc) or (b) income tax if paid to a qualifying person.

Roderick Ramage, BSc (Econ), Solicitor

Roderick Ramage specialises in pension law (and also some charity law) at www.law-office.co.uk