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IHT relief for pensions

Produced by a Tolley Trusts and Inheritance Tax expert
Trusts and Inheritance Tax
Guidance

IHT relief for pensions

Produced by a Tolley Trusts and Inheritance Tax expert
Trusts and Inheritance Tax
Guidance
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Introduction to tax relief for pensions

To encourage people to make provision for retirement, pension schemes benefit from specific tax reliefs. The predominant reliefs relate to income tax, but there are also targeted inheritance tax provisions which form part of the pensions landscape. This guidance note describes the inheritance tax rules and reliefs which affect pension schemes at each stage of the pension lifecycle.

The current income tax regime for pensions follows an ‘Exempt-Exempt-Taxed’ structure:

  1. contributions to registered pension schemes are exempt from income tax

  2. income and gains arising on the investments within the pension scheme are exempt from income tax and capital gains tax

  3. withdrawals from the pension scheme are taxed as income

Each stage in this lifecycle could potentially have inheritance tax consequences. Contributions may involve a transfer of value. Pension investments are held within a trust or comparable vehicle. The residual fund on death could be regarded as part of the deceased’s estate available for distribution to his beneficiaries. Specific rules are required to bestow inheritance

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