Synopsis: As part of pensions flexibility, more people will be encouraged to transfer their pension plans. Those in ill health need to take due consideration of the IHT implications before making a transfer.

Date posted: Thursday, May 07, 2015

Individuals with money purchase pension plans who are aged 55 or over (or approaching that age) will be particularly interested in the ability to draw down on their pension plans under the new flexi-access income drawdown rules.

Unfortunately, not all pension plans offer these flexi-access facilities and, in order to access them, it may mean that individuals will need to transfer their plan to another provider or pension scheme that does.

Transfers of this nature will mean that the individual will need to take advice on a number of factors – not least what the costs of transfer will be (particularly in terms of charges imposed by the existing provider) and whether the transfer will mean the individual will lose any existing valuable guarantees (on investment funds or annuities) offered by the existing plan.

One very important point to consider for those people who have large taxable estates and/or large pension funds is inheritance tax. In such circumstances, if a person who is in serious ill health transfers their pension plan and doesn’t survive the transfer by 2 years, HMRC are likely to treat that individual as having made a transfer of value for IHT purposes and therefore the whole transfer value could potentially be liable to IHT.

This information will be picked up by HMRC on form IHT 419 – the Pension Supplement to the IHT 400 which is the Estate Return on death.

Careful consideration needs to be given to this aspect by those people who are contemplating a transfer and have a potential IHT liability on their death and are not in the best of health at the moment.

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