Pension headache

Treatment of transfer of funds to a personal pension for inheritance tax

As part of her divorce settlement in 2000 Mrs S gave up her job in her ex-husband’s company and received her share of the pension scheme. She was advised that her only option was to transfer her fund into a buyout policy under FA 1981 s 32. This would allow her to invest the fund as she chose – but any surplus would be returned to the company on her death. This was significant because her pension was overfunded. Otherwise if she died without taking the lifetime benefits the policy provided that the trustees would pay death benefits to the personal representatives.

Mrs S was unhappy about the arrangement and wanted to ensure the surplus would benefit her or her sons but she was told she had to wait ten years before the...