Pension into trust? - newbee question

gemma.zhang

Might be newbee question

Is my work pension pot automatically in a trust, so when I die, it will pass on to spouse / children according to who I put on the beneficiary form.

Or I need to get a will to put the pension into a trust? so It can be exempted from inheritance tax ?

I seem to get mixed answers from people.

Thanks!:T

xylophone

You should check with your own pension provider but most pension plans are written in trust to ensure that benefits are paid outside the member's estate and thus not subject to IHT.

The Trustees of an Occupational Scheme will usually have regard to a member's wishes as expressed in the relevant form but they are not bound by them. http://www.pinsentmasons.com/mediafiles/1090699873.pdf

See also https://www.moneyadviceservice.org.uk/en/articles/what-to-do-about-someones-pension-when-theyve-died

TH1878

gemma.zhang wrote: »

Might be newbee question

Is my work pension pot automatically in a trust, so when I die, it will pass on to spouse / children according to who I put on the beneficiary form.

Or I need to get a will to put the pension into a trust? so It can be exempted from inheritance tax ?

I seem to get mixed answers from people.

Thanks!:T

Your pension will either be a Trust based scheme or a Contract based scheme. However, there is little difference between them from your point of view.

You need to complete an Expression of Wishes form (or write a letter) to the pension 'trustees' outlining what you want to happen in the event of your death.

If you die before age 75, the fund can be paid to your beneficiaries free of tax.

If you die after age 75, the fund (or income from it) will be taxed at the beneficiaries' highest rate.

In any case, the pension will be exempt from inheritance tax unless you transfer it whilst in ill health and die within 2 years.

kangoora

TH1878 wrote: »

In any case, the pension will be exempt from inheritance tax unless you transfer it whilst in ill health and die within 2 years.

I'm not sure I understand this, I thought if you were suffering from a terminal illness and had <1 year to live you could take the CETV of your deferred DB pension as a tax-free lump sum.

Does the same apply to any DC pensions you take out in the same situation i.e. they form part of the estate?

TH1878

kangoora wrote: »

I'm not sure I understand this, I thought if you were suffering from a terminal illness and had <1 year to live you could take the CETV of your deferred DB pension as a tax-free lump sum.

Does the same apply to any DC pensions you take out in the same situation i.e. they form part of the estate?

You're not transferring the DB scheme then, you are commuting it for an ill-health lump sum if the scheme rules permit it.

With DB or DC pensions (this has not been tested in a court yet) the benefits may form part of your estate for IHT purposes if you transfer them in ill-health and die within 2 years.

I've read the rules and some further correspondence from HMRC (in answer to specific queries about this) and my current understanding is that it is the growth since the transfer completed and the date of death which is potentially IHT liable. However, as I say, it's not been tested in court so I would err on the side of caution.