The Inland Revenue has confirmed that Inheritance Tax will become payable where a person is taking advantage of new pension 'drawdown' rules and has not purchased an annuity at the time of their death. The new pension rules will allow people past the age of 75 to draw funds from their pension pots without purchasing an annuity. This is known as Alternatively Secured Income and can continue indefinitely.
Where no benefits have been drawn by the date of death, the Inland Revenue would consider that 'no gratuitous benefit' had been received and the pension pot would escape Inheritance Tax.
Our View
We believe the new pension rules are a lot more positive for pension investors and the possibility of Inheritance Tax should not be seen as detrimental. After all, Inheritance Tax can be planned for. One positive is that if the deceased had already purchased an annuity, there is a possibility that the money not paid out from the annuity would pass as a windfall to the annuity provider and the deceased's estate would receive nothing. With the new pension rules, any remaining pension fund will pass to the deceased's estate. Learn more about all the new pension rules in the Pension Simplification Centre.