PTM073600 - Death benefits: lump sums: flexi-access drawdown fund lump sum death benefit
As of 6 April 2024 there is no longer lifetime allowance. If you are looking for information about protections, enhancement factors and the lifetime allowance charge please see these pages on The National Archives.
If you are looking for information about the principles of lifetime allowance and benefit crystallisation events please see these pages of The National Archives.
Glossary |
Conditions for paying a flexi-access drawdown fund lump sum death benefit
When and to whom a flexi-access drawdown fund lump sum death benefit can be paid
The maximum flexi-access drawdown fund lump sum death benefit payable
Taxation of a flexi-access drawdown fund lump sum death benefit
Conditions for paying a flexi-access drawdown fund lump sum death benefit
Paragraph 17A Schedule 29 Finance Act 2004
This lump sum can only be provided if it is paid from a money purchase arrangement and is paid on or after 6 April 2015 (even though the member may have died before that date).
This lump sum can be paid where:
- a member with a flexi-access drawdown pension (see PTM062700),
- a dependant with a dependants’ flexi-access drawdown pension (see PTM072400),
- a nominee with a nominee’s flexi-access drawdown pension (see PTM072400), or
- a successor with a successor’s flexi-access drawdown pension (see PTM072400)
dies with sums and assets remaining in their flexi-access drawdown fund.
Payable as a result of a member’s death
A lump sum payable on the death of a member is a flexi-access drawdown fund lump sum death benefit if it meets the following conditions:
- it is paid in respect of income withdrawal to which the member was entitled to be paid from their flexi-access drawdown fund at the date of their death,
- it is not a charity lump sum death benefit (see PTM073900), and
- the amount of the payment is not more than the ‘permitted maximum’ – see The maximum flexi-access drawdown fund lump sum death benefit payable.
Payable as a result of a dependant’s death
A lump sum payable on the death of a dependant of the member is a flexi-access drawdown fund lump sum death benefit if it meets the following conditions:
- it is paid in respect of dependants’ income withdrawal to which the dependant was entitled to be paid from their dependant’s flexi-access drawdown fund at the date of their death,
- it is not a charity lump sum death benefit, and
- the amount of the payment is not more than the ‘permitted maximum’ – see The maximum flexi-access drawdown fund lump sum death benefit payable.
Payable as a result of a nominee’s death
A lump sum payable on the death of a nominee of the member is a flexi-access drawdown fund lump sum death benefit if it meets the following conditions:
- it is paid in respect of nominees’ income withdrawal to which the nominee was entitled to be paid from their nominee’s flexi-access drawdown fund at the date of their death,
- it is not a charity lump sum death benefit (see PTM073900), and
- the amount of the payment is not more than the ‘permitted maximum’ – see The maximum flexi-access drawdown fund lump sum death benefit payable.
Payable as a result of a successor’s death
A lump sum payable on the death of a successor of the member is a flexi-access drawdown fund lump sum death benefit if it meets the following conditions:
- it is paid in respect of successors’ income withdrawal to which the successor was entitled to be paid from their successor’s flexi-access drawdown fund at the date of their death,
- it is not a charity lump sum death benefit, and
- the amount of the payment is not more than the ‘permitted maximum’ – see The maximum flexi-access drawdown fund lump sum death benefit payable.
When and to whom a flexi-access drawdown fund lump sum death benefit can be paid
A flexi-access drawdown fund lump sum death benefit can be paid whatever age the member was when they died. There is no time limit for the payment of this lump sum.
The tax rules do not set any conditions on who can be paid this type of lump sum. However, the rules of the pension scheme may do so.
The maximum flexi-access drawdown fund lump sum death benefit payable
Paragraph 17A(6) Schedule 29 Finance Act 2004
If the amount of the lump sum is more than the ‘permitted maximum’, the excess amount is not a flexi-access drawdown fund lump sum death benefit. If the excess cannot be paid as some other type of lump sum death benefit it will be an unauthorised member payment and taxed accordingly (see PTM131000). The amount of the lump sum up to the ‘permitted maximum’ will be a flexi-access drawdown fund lump sum death benefit.
The maximum amount of lump sum payable is an amount equal to the combined total of all the sums and the market value of the assets representing the member’s or appropriate beneficiary’s flexi-access drawdown fund immediately before the payment is made. So the maximum is effectively whatever was held in the fund at the date of payment.
Taxation of a flexi-access drawdown fund lump sum death benefit
Death benefit paid on or after 6 April 2016
Section 206 Finance Act 2004
Sections 637M and 637S Income Tax (Earnings and Pensions) Act 2003
The Pension Benefits (Insurance Company Liable as Scheme Administrator) Regulations 2006 - SI 2006/136
The tax treatment of lump sums paid after 5 April 2016 depends on how old the member or beneficiary was when they died, when the lump sum is paid and to whom it is paid.
The flexi-access drawdown fund lump sum death benefit will not be taxable if the member (or beneficiary) was aged under 75 when they died provided it is paid within two years of:
- the date the scheme administrator first knew of the member’s (or beneficiary’s) death, or
- if earlier, the date they could first reasonably have been expected to know of it.
The flexi-access drawdown fund lump sum death benefit is taxable if:
- the member (or dependant) was 75 or older when they died,
- the lump sum was not paid within the two year payment period shown above, or
- the lump sum payment exceeds the deceased member's lump sum and death benefit allowance.
Whether the taxable lump sum payment is:
- taxable as income of the recipient, or
- subject to the special lump sum death benefits charge
depends on whether or not the lump sum is paid to a ‘non-qualifying person’. Payments to a ‘non-qualifying person are subject to the special lump sum death benefits charge’.
The flexi-access drawdown pension lump sum death benefit will be a relevant lump sum death benefit unless its paid from rights that previously crystallised under section 216 Finance Act 2004. Payment of a relevant lump sum death benefit is a relevant benefit crystallisation event and is tested against the deceased member's lump sum and death benefit allowance. The amount of the lump sum that exceeds the deceased member's available allowance will be taxed as pension income at the recipient's marginal rate.
Go to PTM073010 for more detailed information on the tax treatment of lump sum death benefits, including the lump sum and death benefit allowance and the definition of a ‘non-qualifying person’.