IHTM17014 - Pensions: examining form IHT409: boxes 8 to 16

Most (if not all) pension schemes will pay death benefits if a person dies before drawing any pension benefits. Many will also pay death benefits in the form of unused funds if a person dies whilst in drawdown. That means they are drawing or entitled to income from a pension arrangement where the funds have not been used to secure an income for life.

If the person is over the age of 75 when they die then most lump sum death benefit payments will be subject to an income tax charge if they are made from a UK registered scheme. The rate of the charge is:

  • 35% before 6 April 2011,
  • 55% from 6 April 2011 to 5 April 2015, and
  • 45% from 6 April 2015.

If the person is under age 75 when they die then no income tax charge would usually arise on the payment of the lump sum.

In most cases involving UK pension arrangements, the lump sums are paid at the discretion of the pension scheme trustees or providers - even where a nomination has been made that expresses a wish as to who should be the beneficiary. Where the lump sum is discretionary it is not part of the estate or chargeable to Inheritance Tax. However there are some cases where the payment is not discretionary and Inheritance Tax is due on all or part of the lump sum - see IHTM17052.

If box 9, 10, or 11 is ticked ‘yes’, the lump sum is chargeable to Inheritance Tax. You should check that:

  • box 15 has been completed
  • the amount has been included at box 56 and not deducted in box 92.

If box 16 indicates that the only beneficiary is the spouse or civil partner, we can accept the position. Otherwise, if no value has been included as chargeable, you should ask the taxpayer or agent why.

If the pension scheme is the NHS or the Judges pension scheme (IHTM17058) the lump sum may be chargeable (as it is generally payable to the estate under statutory provisions) but may still be spouse or civil partner exempt. If the taxpayer or agent has claimed that this type of payment is outside the estate, you should ask why it is not considered taxable and then refer the file to Technical.

If box 12 is answered ‘yes’, check that boxes 13 to 16 have been completed.

  • If the death benefit is from a non-UK pension scheme, ask for a copy of the scheme rules or other governing document. You should examine the rules in relation to death benefits to see if there is any discretion given to the provider. Many such schemes will only pay death benefits at the direction of the scheme member and these are taxable.
  • If the payment is from a UK scheme, is substantial and is not spouse or civil partner exempt, you should ask for evidence that the payment was discretionary. This will usually be an extract from the scheme rules or a letter from the provider that explains how death benefits are treated under the scheme.
  • If there is any indication that the provider is an employer-financed retirement benefit schemes (EFRBS) (a non-registered scheme), you should refer the file to Technical.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)