PTM073800 - Death benefits: lump sums: winding-up 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 |
Definition of a winding-up lump sum death benefit
Amount that can be paid as a winding-up lump sum death benefit
Who can get a winding-up lump sum death benefit
Testing a winding-up lump sum death benefit against the lifetime allowance
Taxation of a winding-up lump sum death benefit
NOTE: This guidance only applies to lump sums paid as winding-up lump sums before 6 April 2015. Paragraph 21 of Schedule 29 Finance Act 2004 which defines a winding-up lump sum death benefit has been repealed with effect from 6 April 2015. This is because, following changes to the definition of a trivial commutation lump sum death benefit that take effect from that date, a lump sum that would otherwise have satisfied the conditions for a winding-up lump sum death benefit will meet the conditions for payment as a trivial commutation lump sum death benefit under paragraph 20 so there is no need to provide separately for a similar lump sum on winding up. For guidance on the trivial commutation lump sum death benefit, see PTM073700.
Definition of a winding-up lump sum death benefit
Paragraph 21 Schedule 29 Finance Act 2004
If a pension scheme is winding up, the scheme administrator can choose to convert a small dependant’s pension into a one-off lump sum payment. This is a winding-up lump sum death benefit. The lump sum payment must extinguish the dependant’s rights to death benefits (both pension and lump sum) under the scheme.
A scheme may have several employers participating in a scheme. Subject to certain requirements being met, a partial winding-up of the scheme will constitute a scheme winding-up for the purposes of these provisions (see PTM092420).
Amount that can be paid as a winding-up lump sum death benefit
Paragraph 21 Schedule 29 Finance Act 2004
The maximum winding-up lump sum death benefit that can be paid from any scheme is £18,000. This is a maximum amount per scheme, not a maximum across all schemes.
Who can get a winding-up lump sum death benefit
Paragraph 21 Schedule 29 Finance Act 2004
The dependant who was due to be paid the dependant’s pension is the person who should get this lump sum.
Testing a winding-up lump sum death benefit against the lifetime allowance
This does not happen. Winding-up lump sum death benefits do not use up lifetime allowance.
Taxation of a winding-up lump sum death benefit
Section 579A-section579D and 683 Income Tax (Earnings and Pensions) Act 2003
Regulation 11 Income Tax (PAYE) Regulations 2003 - SI 2003/2682
The whole lump sum is taxable as pension income of the dependant. The pension scheme administrator should apply PAYE to the lump sum payment.