Pension draw down probate

tigger1986

Hi, I'm executor for my mother in laws will and I'm just completing the IHT forms so that I can apply for probate.

One of the questions on the online form is 'did they change or draw down a pension in the two years before their death'. Less than two years ago they did, as their original pension was replaced with a new one. The old one still remains and is due to pay a death in service benefit to her son's. The new one she chose to draw down the lump sum of around 35k and take it early so she received a monthly amount of £500. So she received this money in her bank around a year and a half before she death. This money remained in her bank and they have transferred this to me without probate.

My questions is which part of the form does this need to go into in IHT400? She paid tax on it at the time so essentially it's just part of the remaining money in her bank which when combined with the house value of 150k is less than the allowable value for the estate (I have been advised the death in service benefits don't count towards the estate value)

Keep_pedalling

You need to read the notes relating to pentions in the IHT guidance notes (page 27) and complete IHT409. There are certain circumstances where a lump sum does form part of the estate, but even when that is not the case you still need to complete the pentions supplementary sheet iHT409.

TcpnT

Less than two years ago they did, as their original pension was replaced with a new one. The old one still remains and is due to pay a death in service benefit to her son's. The new one she chose to draw down the lump sum of around 35k and take it early so she received a monthly amount of £500.

Can you explain the details about this a little further. You say that the old pension was "replaced" with a new one but then state that the "old one remains". What type of pension was the old one, how/why was it replaced and exactly what type of pension is the new one. What were the reasons for doing this?

As the previous poster said the notes for IHT 400 are fairly comprehensive on the subject. The point about lump sum payments is that they must be discretionary on the part of the trustees to fall outside the estate. If there was a binding nomination for the beneficiary of the lump sum which the trustees did not have the power to vary then the lump sum would be treated as part of the estate.

This is separate from the two year issue. I think what HMRC is looking for here are changes in pension arrangements in the two years prior to death that were made in light of reduced life expectancy with the purpose of transferring value to another person. An example would be cashing in a DB pension and transferring the lump sum to a DC scheme which could then pass to beneficiaries in a way that would not have been possible with the DB scheme.