IHTM17039 - Pensions: IHT exclusions: sponsored superannuation schemes

Before 6 April 2006, a sponsored superannuation scheme fell within IHTA84/S151, so it was excluded from being a relevant property trust by the provision in IHTA84/S58(1)(d).

Although this category of pension scheme was removed from the relevant IHT exclusions with effect from 6 April 2006 there are transitional provisions for schemes that were in existence at that time. This means that a scheme within IHTA84/S151 immediately before 6 April 2006 does not constitute relevant property where no further contributions are made under the scheme on or after that date. The existing funds in the scheme are ‘protected’.

A transfer from one pension scheme to another is not treated as a new contribution, so the funds in one protected scheme may be transferred to another protected scheme without the exclusion being lost. However a transfer from a protected scheme to an unprotected scheme would result in the underlying funds losing the protection of IHTA1984/S58(1)(d).

After 6 April 2006, if further contributions were made to a sponsored superannuation scheme there are provisions in FA2004/Sch36 that apportion the total fund between the pre 6 April 2006 ‘protected’ fund and the post 6 April 2006 relevant property fund. It would be relatively unusual, however, to see cases where the scheme trustees have foregone the protection of being wholly excluded from an IHT charge.

A sponsored superannuation scheme is defined by ICTA88/S624.

It means a scheme or arrangement;

  • relating to service in particular offices or employments, and
  • having for its objects or one of its objects to make provision in respect of persons serving in those offices or employments against future retirement or partial retirement, against future termination of service through death or disability, or against similar matters,

The cost of making this provision must be met by the employer (or third party) and not by the employee.

The provision of the benefits does not need to be the main object of the scheme. Some employee benefit trusts (IHTM42900) set up before 6 April 2006 will also be sponsored superannuation schemes, even though the only superannuation benefit they provide is a death or disability in service payment.