What are the Rules for Passing My Pension to My Family When I Die?

With all the changes to the pension legislation in the 2015 Budget I wanted to understand whether it would affect passing my pension benefits to my loved when I die. Have there been an changes in the rules which could trigger a tax charge?

Question asked by Gareth Small
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I know how much my pension is worth
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Answered by Andrew Jenkinson

Before the 2015 Budget, it was generally only possible to pass a pension on as a tax-free lump sum if you died before the age of 75 and you hadn’t taken any tax-free cash or income. Any breach of these requirements would trigger a 55% ‘death tax’ charge.

Now the tax treatment of any defined contribution pension passed on death will depend on your age when you die.

What happens to your pension if you die before age 75:

What happens to your pension if you die after age 75:

There are three options for your beneficiaries:

  • They can take the whole fund as a single cash lump sum subject to a 45% tax charge. However, payments made after 5 April 2016 will be taxed as your beneficiary’s income;
  • They can take a regular income through an annuity or drawdown with the payments being taxed as your beneficiary’s income;
  • They can take occasional lump sums through drawdown which will be taxed as your beneficiary’s income.
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This information does not constitute financial or other professional advice. You should consult your professional adviser or contact us directly on 02084327333 should you require financial advice. It is important to ensure any insurance policy you take out is suitable for your needs.
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