When IHT applies to Pensions

Inheritance Tax (IHT) is levied on a person’s estate when they die and can also be payable during a person’s lifetime on certain trusts and gifts. The rate of Inheritance Tax payable is 40% on death and 20% on lifetime gifts. There is a nil-rate band, currently £325,000 below which no Inheritance Tax is payable. A pension is normally free of IHT and unlike many other investments is not counted as part of a deceased persons taxable estate. However, any money taken out of a pension before death becomes part of the deceased estate and could be subject to IHT. This includes any tax-free cash allowance which might not have been spent. IHT charges relating to pensions can arise in relation to the following: <ul> <li>Lifetime transfers</li> <li>Benefits within the estate</li> <li>General power over benefits</li> <li>Omission to exercise a right</li> <li>Alternatively secured pensions</li> </ul>