Pensions and IHT - what is a 'transfer'?
benjaminfabi
Moderator
Hi,
M&G article states that:
HMRC consider transfer of benefits from one scheme to another to be transfers of value. This is down to the fact that the member could direct that the transfer is made to an arrangement where the estate would be entitled to the death benefit.
AJ Bell operates a D2C pension, Youinvest, and an advised pension, Investcentre. It has said that:
Advisers cannot manage assets on the former, but with a client with stage 4 cancer holding £800k in there, a transfer to the latter could be problematic.
AJ Bell has said:
The transfer between the Youinvest platform and Investcentre is under the same scheme so technically speaking this is not a pension transfer and should not cause any issues.
My question is whether this is what HMRC would consider as a transfer? My understanding is that the client would apply for, and open, a new plan within the Investcentre pension scheme. This would have a new plan number. It would require a new expression of wish.
Therefore, does it being part of the same registered pension scheme bypass the IHT trap?
Comments
A good question. The answer is yes and no.
Legally it's not a transfer and HMRC guidance refers to transfers between schemes which doesn't apply here https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm17072. So I agree with AJ Bell that's not an issue as it's not a pension transfer.
But, if they die in the next two years I think it would need disclosed as a change to the pension https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm17015 so they may well want a nibble at it if they think there is some form of gratuitous intent. If the new EofW is the same as the current one then I don't think that's much of an issue (and wonder why they need a new one as the scheme trustees already have one and it's the same scheme, maybe it's AJ Bell specific - the original form has the plan number on it or some malarkey)
Thanks @les_cameron
My initial reply to the adviser was along the lines of looking and sounding like a duck etc. My main concern is that even if it can be argued, it introduces the possibility for HMRC to be getting into the argument at a time when people are grieving. One more thing to deal with. And it doesn't materially benefit the client in his lifetime.
Appreciate the detail.
I was wondering where the client benefit was!
Well in theory there's simplicity for the surviving spouse as there is the IFA who can immediately step in and support with minimal fuss from date of death. So it isn't without value. Plus it is better to have a fully advised proposition than a halfway house with investment advice that needs DIY implementation.
But I need to position the possible loss to the estate if HMRC successfully argus that a transfer of value has occurred.
It's never straightforward!