S226 not in trust- position on death
TomLloyd_Read
Member
We've just taken on a client who has an old S226 not in trust and so payable to the PRs on death. I guess there is a short term benefit in assigning this to trust. On death either pre trust or post 2027, is the payment to the PRs subject to IHT (wealthy client, estate will pay IHT) and the special lump sum death benefit charge? Couldn't see anything that suggests it wouldn't, but may be a clause somewhere that exempts this type of policy.
Comments
As the benefit is payable to the estate as of right it is included in the estate for IHT currently. Post April 2027 it will also be included in the estate as it will be notional pension property (producing an uncrystallised fund lump sum death benefit.).
You will get IHT and also the 45% charge afterwards if a post 75 death(does the s226 allow you to stay beyond age 75 mind you, ours don't.)
Bottom line a s226 is just a one person pension scheme.
There would be a benefit to putting in trust now as it would mean no need for probate to access the funds (depending on provider processes). But it would also be a transfer of value for IHT purposes.
We await HMRC confirming what happens if you have a pension transfer of value pre April 2027 then a death post April 2027 (my thought is double charge relief would apply).
There may also be benefit in transferring to a scheme with flexible death benefits so they can access drawdown to manage the tax after the IHT.
Lovely, thanks for this Les.