The Autumn Statement (25 November) has shed new light on inheritance tax (IHT) procedure, with retrospective action limiting the liabilities of pension scheme members.
The Government is to backdate legislation to prevent the paying-in public from being charged IHT if their drawdown funds are not completely used before death.
The measure – applying to deaths on or after 6 April, 2011 – came amid fears that purposely failing to use up a pension fund would amount to tax avoidance. But the Chancellor’s pledge has removed doubt over what was originally an unclear area.
“Any clarity on IHT and pensions is welcome because it has always been a grey area where people haven’t needed to draw their fund before they die,” one expert told the Citywire website.
She said the fact IHT would ‘not be payable on drawdown funds not used before death’ was good news for those ‘that may have been concerned that they would be hit’.
A less high-profile IHT change in the Autumn Statement was the exemption for compensation to World War II’s victims of persecution. It applies to deaths on or after 1 January 2015 and will include payments made under a new scheme called the Child Survivor Fund.
The tax implications of pensions are expected to be highlighted again in 2016’s Budget when the Chancellor makes a decision on whether to cut tax relief on pension contributions for higher earners.
As to late-November’s developments, the backdating of IHT rules will be included in the Finance Bill 2016.
At Moore Thompson, we can lead you through the maze of IHT and your liabilities – or, in certain circumstances, lack thereof. To give your estate-planning a deserved lift, please contact us.