85 Exemption relating to retirement benefits

Summary

This section exempts from inheritance tax any balance in an “approved retirement fund” or in an “approved minimum retirement fund” or in a “Personal Retirement Savings Account” which passes on the death of a pensioner, or on the death of a predeceased pensioner’s spouse/civil partner, to a child of his/hers who is over the age of 21 years where that balance is liable to income tax.

Details

(1), (2) The purpose of this section is to ensure that any balance in an “approved retirement fund” or in an “approved minimum retirement fund” which passes on the death of the pensioner will be exempt from capital acquisitions tax if inherited by a child of the pensioner who is over 21 years of age at that time. Where the fund is inherited by the spouse/civil partner of the pensioner and held by the surviving spouse/civil partner in an approved fund, any balance in the fund which is inherited by a child of the surviving spouse/civil partner on the subsequent death of the surviving spouse/civil partner will also, under this section, be exempt from capital acquisitions tax if the child is over 21 years at that time. Where the child is under 21 years of age when he/she inherits the fund, capital acquisitions tax will be payable under the normal rules and subject to existing thresholds.

Any balance in the fund passing on death to children over 21 years of age will be subject to income tax at 41% (or, at the special rate of 20%, when taken on the death of a surviving spouse/civil partner of the pensioner). The intention behind this section is to avoid double taxation in respect of retirement funds inherited by children of a pensioner.

Relevant Date: Finance Act 2015