Access to pension freedoms in ill health could lead to inheritance tax trap
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09/11/2015

Under current rules, those suffering from ill health could potentially see their pension assets ultimately subject to inheritance tax (IHT) if they transfer to a new pension scheme to access the range of flexibilities introduced by the pension freedom reforms in April 2015.

In most circumstances, inheritance tax no longer applies to death benefits paid by registered pension schemes whether paid as lump sums or income. Following the extensive changes to pension legislation this year, assets can pass on within the pension wrapper and be subject to tax at the beneficiaries’ marginal rate (or with nil income tax if the member dies under age 75).

However, if a member transfers their pension rights from one registered pension scheme to another, perhaps because another scheme offers greater flexibility, then HMRC would deem that they made a fresh disposition of their death benefits. This is a transfer of value for IHT purposes, and could create a potential IHT liability on death if the member’s life expectancy was impaired when they made the transfer and they died within the following two years.

HMRC would investigate whether the member was in good health when the transfer was made if the member subsequently died within the following two years. If HMRC found that the member’s life expectancy was impaired (and the member knew it) some, or all, of the transfer value could be included in the member’s estate.

Jon Greer, pensions expert at Old Mutual Wealth, says:

“There may be many reasons why individuals wish to transfer pension funds when they know their life expectancy is impaired. For example, if their existing scheme does not offer the full range of flexibilities that enable individuals greater freedom to pass on their pension funds.

“We believe this tax treatment creates an unnecessary restriction for those with impaired life expectancy and risks punishing their families by subjecting pension assets to unnecessary IHT. This is not in the spirit of the pension freedom reforms and our response to HMT’s pension transfer consultation includes a recommendation that this should be reformed.”

For more information contact

Tim Skelton-SmithOld Mutual Wealth02380 916 99807824 145 076tim.skelton-smith@omwealth.com

Notes to editors:

About Quilter plc:

Quilter plc is a leading wealth management business in the UK and internationally, helping to create prosperity for the generations of today and tomorrow.

Quilter plc oversees £116.5 billion in customer investments (as at 30 June 2018).

It has an adviser and customer offering spanning: financial advice; investment platforms; multi-asset investment solutions and discretionary fund management.

The business is comprised of two segments: Wealth Platforms and Advice and Wealth Management.

Wealth Platforms includes the Old Mutual Wealth UK Platform; Old Mutual International, including AAM Advisory in Singapore; and the Old Mutual Wealth Heritage life assurance business.

Advice and Wealth Management encompasses the financial planning network, Intrinsic; Old Mutual Wealth Private Client Advisers; discretionary fund management business, Quilter Cheviot; and the Multi-asset investment solutions business.

The Quilter plc businesses are being re-branded to Quilter over a period of approximately two years:

• The Multi-asset business is now Quilter Investors

• Intrinsic to Quilter Financial Planning

• Private Client Advisers to Quilter Private Client Advisers

• The UK Platform to Quilter Wealth Solutions

• The International business to Quilter International

• The Heritage life assurance business to Quilter Life Assurance

• Quilter Cheviot will retain its name

This press release is for journalists only and should not be relied upon by financial advisers or customers.

Please remember that past performance is not a guide to future performance. The value of investments and the income from them can go down as well as up and investors may not get back any of the amount originally invested. Exchange rate changes may cause the value of overseas investments to rise or fall.

This communication is issued by Quilter plc.  Registered office: Millennium Bridge House, 2 Lambeth Hill, London EC4V 4AJ, United Kingdom. Registered number: 6404270.  Registered in England.