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Before this confirmation, it was not well known whether such income was considered by them as income or partly income and partly capital for the purposes of the inheritance tax exemption for normal expenditure out of income.
This confirmation means that clients who have excess income from unsecured or alternatively secured pensions can pass it on under the normal expenditure out of income exemption without incurring any inheritance tax liability.
Welcoming the clarification, Colin Jelley of Skandia said, 'advisers can now be clear on exactly where their clients in unsecured or alternatively secured pensions stand, and therefore make plans accordingly.
'The normal expenditure out of income exemption has no financial limit and so advisers should consider carefully whether their application would be relevant for any of their clients. If so, thinking about the audit trail at the beginning of the process is a worthwhile exercise'.
