Did you know that pension annuities that guarantee payments for a specific number of years can land the estate of the annuitant with an inheritance tax bill should they pass away. This important point was highlighted by LV= earlier this year, who said that in some instances this was being missed by pension advisers. Be clear however, that it is the guarantee payments that are in question, not that guaranteed annuity rates. If the insurance companies do not make discretionary guarantee payments, then the pension annuity could be in effect taxed twice.
This only applies of course to couples with estates worth over £650,000, so most people unless they are very rich will not be affected by this scenario. Guaranteed amounts would be paid to the surviving partner.
But if you are a single annuitant who passes away and you have no deceased spouses allowance to allow for, then you could by liable for IHT. Guaranteed annuities will typically come with five or ten year guaranteed payments. If the annuitant dies before the end of this period, and discretionary payments are not made by the insurer, the sum could be liable for IHT under the annuitants estate.
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