Section 637T — Income Tax (Earnings and Pensions) Act 2003: Availability of individual’s lump sum and death benefit allowance where multiple lump sum death benefits paid

Availability of individual’s lump sum and death benefit allowance where multiple lump sum death benefits paid 637T 1 This section applies where two or more relevant benefit crystallisation events within section 637S(2)(a)(ii) occur in relation to an individual.

2 The relevant benefit crystallisation events are to be treated for the purposes of section 637S as occurring simultaneously—

a immediately before the individual’s death, and b immediately after any pension commencement lump sum to which the individual becomes entitled immediately before death by virtue of section 166(2) of FA 2004 (lump sum rule).

3 The amount of the individual’s lump sum and death benefit allowance that is available on the occurrence of any of the relevant benefit crystallisation events mentioned in subsection (1) is the relevant proportion of the undivided available amount. 3A In subsection (3), “ the undivided available amount ” means the amount of the individual’s lump sum and death benefit allowance that would, apart from that subsection (but after taking into account subsection (2)), be available on the occurrence of the relevant benefit crystallisation event in question.

4 In subsection (3), “ the relevant proportion ” means— A B where— A is the amount of the lump sum death benefit the payment of which constitutes the relevant benefit crystallisation event in question; B is the aggregate of the amounts of each lump sum death benefit the payment of which constitutes a relevant benefit crystallisation event mentioned in subsection (1).

5 Where any inheritance tax is attributable to the value of the individual’s notional pension property, references in subsection (4) to the amount of a lump sum death benefit are to its IHT-adjusted amount.

6 The “IHT-adjusted amount” of a lump sum death benefit paid to a person under a registered pension scheme is (subject to subsection (7)) the amount determined as follows — Step 1 Take the amount of the lump sum death benefit paid to the person. Step 2 Add the amount (if any) by which the person’s entitlement to the lump sum death benefit was reduced in consequence of an adjustment under section 226B(5) of IHTA 1984. Step 3 Deduct the amount (if any) of inheritance tax— that is attributable to the value of the individual’s notional pension property in relation to the scheme, and for which the person— is, or at any time was, liable under section 200(1)(c) of IHTA 1984, or would at any time have been liable under that provision if the tax had not previously been paid by another person. If the result is a negative amount, the IHT-adjusted amount of the lump sum death benefit is nil.

7 Where more than one lump sum death benefit is paid to the person under the scheme, the amount to be deducted under Step 3 is the following proportion of the amount of inheritance tax identified in that Step— C / D where— “ C ” is the amount resulting from Step 2; “ D ” is the aggregate of the amounts resulting from Step 2 in respect of each lump sum death benefit paid to the person under the scheme.

8 In this section—

a “ IHTA 1984 ” means the Inheritance Tax Act 1984;

b “ notional pension property ” has the same meaning as in IHTA 1984.