10 May 2010
An unexpected legal victory for HM Revenue & Customs (HMRC)
in the case of Fryer v HMRC could lead to deferred
pensions being subject to inheritance tax (IHT) and overturns
nearly twenty years of established practice.
Martin Reynard, of London-based accountants Blick Rothenburg,
said: "In 1992, HMRC stated that it would not seek to apply IHT on
the overwhelming majority of deferred pension funds, but would look
closely at situations involving terminal illness. This has always
been taken to mean that if the Revenue believes that someone has
deliberately denied themselves income solely to preserve their
pension fund and keep it outside their estate, then they will act.
Now we have a situation, where the Revenue is ignoring the wider
circumstances. Regardless of actual income needs, it considers that
where an individual could take their pension but decides not to,
this is IHT avoidance."
Tom McPhail, pensions expert at Hargreaves Lansdown, said:
"Having read the Judge's notes, it appears to pivot on this
decision not to take benefits at the specified date. In theory
therefore, it does appear to set a precedent which could be applied
more generally to undrawn pension funds on death. I don't think we
can interpret this judicial decision as definitive until HMRC has
issued unambiguous guidelines as to when pension funds will be
liable to IHT."