PTM072440 - Death benefits: Types of pension: beneficiary's flexi-access drawdown from 6 April 2015: Where a dependant had designated funds in an arrangement into a dependant’s flexible drawdown pension fund before 6 April 2015
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Glossary |
Automatic conversion to flexi-access drawdown fund
Taxation
Automatic conversion to flexi-access drawdown fund
Paragraphs 22A(1)(b) Schedule 28 Finance Act 2004
A dependants’ drawdown pension fund that immediately before 6 April 2015 could pay flexible drawdown pension (see PTM072330) automatically converted into a dependant’s flexi-access drawdown fund on 6 April 2015.
Any further designations of sums or assets for drawdown on or after 6 April 2015 under the arrangement holding this drawdown fund will go into the flexi-access drawdown fund.
From 6 April 2015 therefore, drawdown pension can continue to be taken from the arrangement in line with the guidance on flexi-access drawdown pensions at (PTM072430).
Taxation
Sections 579A , 579CZA(1) and(5) and 646C(1) and (5) Income Tax (Earnings and Pensions) Act 2003
This section of the guidance relates only to dependant’s drawdown pension paid from a dependant’s flexi-access drawdown fund that was created by the conversion of a dependants’ flexible drawdown pension fund.
Dependants’ drawdown pension can be paid as income withdrawal or short-term annuity. The tax treatment for each form of dependants’ drawdown pension is not the same after 5 April 2015.
Where the dependant’s drawdown pension is taxable, it is taxable as the dependant’s pension income. The pension payer should operate PAYE on the pension.
Taxation of dependants’ income withdrawal
Sections 579A and 579CZA(1) and(5) Income Tax (Earnings and Pensions) Act 2003
Dependants’ income withdrawal paid on or after 6 April 2015 will be taxable if:
- it is paid in respect of a member who was aged 75 or older when they died, or
- any payment of depedants' drawdown pension (either as income withdrawal or short-term annuity) was made before 6 April 2015 by, or in respect of, the dependants’ flexible drawdown pension fund.
Dependants’ income withdrawal paid on or after 6 April 2015 will be tax free if:
- it is paid in respect of a member who was aged under 75 when they died, and
- before 6 April 2015 no payment of depedant's drawdown pension (either as income withdrawal or short-term annuity) was made by or in respect of the dependants’ flexible drawdown pension fund.
Taxation of dependants’ short-term annuity
Sections 579A and 646C(1) and (5) Income Tax (Earnings and Pensions) Act 2003
Dependants’ short term annuity paid on or after 6 April 2015 will be taxable if it is paid in respect of a member who:
- was aged 75 or older when they died, or
- died before 3 December 2014 at any age.
Dependants’ short term annuity paid in respect of a member who died on or after 3 December 2014 aged under 75 will be taxable if before 6 April 2015 any of the following payments were made:
- Dependants’ income withdrawal from the dependants’ flexible drawdown pension fund
- Dependants’ short-term annuity that purchased using funds held under the dependants’ flexible drawdown pension fund
- Dependants’ annuity that purchased using fund held under the dependants’ flexible drawdown pension fund.
Dependants’ short term annuity paid on or after 6 April 2015 will be tax free if:
- it is paid in respect of a member who died on or after 3 December 2014 aged under 75, and
- before 6 April 2015 the dependants’ flexible drawdown pension fund was not used to pay dependants’ income withdrawal or purchase a dependants’ short-term annuity (or dependants’ annuity) contract that made payments before 6 April 2015.