IHT and Pension Lump Sum payments

[Thewlis]

When my father died in May, I followed up 2 annuities which I have discovered have been set up with a payment on death. One organisation has paid a small amount less 55% tax, and the other is a guaranteed annnuity with 5 months left to run, which will pay 5 instalments direct to the beneficiaries, and will be subject to income tax.

My parents are divorced, and the estate will be passed to myself and my 2 sisters.

When filling out IHT409/400, the boxes imply that payments after death from a pension are subject to IHT.

I am confused as to whether this is correct (and of course fair). Is is possible that payments will be subject to 2 different taxes?

So far, I have had conficting information - the financial advisor who acted for my father when these policies were taken out is sure that only one tax should be paid, and the organisation involved with the guaranteed annuity is clear that the payment will be subject to income tax, and won't comment on IHT; The pension advisory service thought that if the money is not paid into the estate it shouldn't be subject to IHT.

HMRC published draft guidance in March 2011, following a change to the tax treatment of lumpsum payments in the Finance Bill, and it says a new version of IHT409 will be available for deaths after April 6th, however their website doesn't show it, and when I ring the helpline, they point me to the website.

Please can anyone help to shed any light? Thanks

[tax_schmax]

You need to policy document to help you here. There are a number of types of annuity, including some that are actually income drawdown contracts. The rules vary greatly. You should ask your fathers adviser for the policy documents and key features or key facts documents. I'm a little surprised they didn't go to these in the first place. They will contain the answers you need.