foreign DC pots and inheritance

[JohnB]

I have £50k in a US defined contribution pension I earned when resident in the USA. I know it does not count towards the LTA, and I would pay full income tax on it if I extracted it in my lifetime, but what happens when I die? Does it form part of my estate for IHT, or is it exempt like UK DC pensions are? Its from TIAA, a Fortune 100 academic pension provider, so its very pukka.

[mc2fool]

Well, the reason most DC schemes here are exempt from IHT is that they are in a discretionary trust and so not actually your funds, and as such they don't form a part of your estate. So I think the first question is what happens to the money in the your US scheme when you die; are they legally bound to pay it out to your estate or what?

And then, of course, are there any US-UK tax treaty provisions that might apply? It's all a big dunno from me but you might find an answer in: https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm17000. Good luck!

[Lootman]

Well, the reason most DC schemes here are exempt from IHT is that they are in a discretionary trust and so not actually your funds, and as such they don't form a part of your estate. So I think the first question is what happens to the money in the your US scheme when you die; are they legally bound to pay it out to your estate or what?

It's all a big "dunno" from me too. However one thing I do know is that for many types of financial accounts in the US (including personal pensions) you can do something that you cannot do (to my knowledge) in the UK. And that is to designate a beneficiary within the account. This has the effect of creating a trust under the covers. ensuring that upon death the assets pass to that named beneficiary and your will is ignored.

So it can make a difference whether or not that election was made in this case. The mechanism is called a "Transfer on Death" (TOD) designation, or "Payment on Death" (POD). The TOD rules can vary by State and, for 401-K plans, it may not be possible to set up someone other than your spouse as a TOD beneficiary if you are married.

https://www.wellsfargo.com/the-private- ... ner%20dies.

[mc2fool]

However one thing I do know is that for many types of financial accounts in the US (including personal pensions) you can do something that you cannot do (to my knowledge) in the UK. And that is to designate a beneficiary within the account.

Oh you certainly can do that in the UK, and its effects vary according to the scheme so need looking into on a case by case basis. Certainly for most DC schemes it is just an Expression of Wishes which the scheme doesn't have to follow but normally will unless e.g. you have left behind a bunch of dependants but have expressed wishes to leave your pension to the local cats home.

But your point about Transfer on Death elections I think is valid, my general IANAL understanding is that any assets you have the absolute control to direct the disposition of on your death comes into your estate for IHT purposes.