Treasury confirms IHT exemption for drawdown

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Funds left in drawdown pensions after death will not be subject to inheritance tax, the Government has confirmed.

In the Autumn Statement document published today following the Chancellor’s speech, the Treasury committed to legislative changes as part of the Finance Bill 2016.

The exemption will be backdated to deaths on or after 6 April 2011.

In 2014 the Government announced cuts to the ‘death tax’ applied to pensions.

But HMRC could have potentially pursued people for IHT if they were judged to have left money in pensions to avoid it becoming part of their estate and therefore liable to the tax.

AJ Bell head of technical resources Gareth James says: “People in flexible or flexi-access drawdown have had the option of withdrawing their whole fund, and the action of choosing not to do this had the effect of reducing the value of their estate on death, thus creating the IHT liability.

“I don’t believe that HMRC has been applying IHT in these circumstances, but it is helpful that any doubt over the potential liability to IHT will be removed.”

The document also says the Finance Bill will simplify how scheme pensions are payable on death.