DC to DC transfers, ill health and IHT (and IHT from 2027!)

PippaO

Hi

Under current rules, if a person transfers a pension to another scheme (DB to DC or DC to DC), if they are knowingly in ill health at the time of the transfer then the transfer may be caught by IHT, if HMRC believes there was gratuitous intent.
Our client is 59, just been diagnosed with prostate cancer, so in ill health but no reason to believe he'll have a shortened life expectancy. He's retiring at 60, most of their spend is met by guaranteed income, he doesn't want/need another annuity. Current plan only provides annuity or full UFPLS. Transfer rationale would be to access more suitable income options during his lifetime (i.e. small ad hoc drawdown payments). Death benefits are more flexible under receiving scheme (beneficiary drawdown) but that won't be outlined as the reason for transfer.

Would this be caught under the 2 year IHT rule if he died within 2 years of transfer, d'you think?

How will the 2 year rule interact with the wider rule bringing pensions with discretionary powers within the IHT net from 2027? Will it still even be relevant? Policy provisions not clear yet?

Any thoughts welcome...

Thanks all!

PippaO

Note - ceding scheme is a PP, also with discretionary powers, not a RAC or S32

les_cameron

You would only ever know post death if it went to a tax tribunal and they examined the full circumstances and decided.

It does sound at face value that there is no gratuitous intent. I assume the nomination in the new scheme will be the same as the nomination in the old scheme. If not there may be a challenge that there was some from of gratuitous intent.

It sounds as if you need to accept the potential tax disadvantage as not transferring doesn't seem suitable.

It will be several months before we know the answer to your last question. In theory there might be double charge relief. But for that to be an issue you need to make it beyond two years so may be OK on the transfer front anyway (covered in last weeks webinar).

Finally, the transfer of value isn't the transfer value remember probably around a third of it so you might just get loss of NRB and no IHT directly related to the transfer.