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Important - tax on pension wealth is changing
From 6 April 2027, unused pension wealth will be subject to inheritance tax, meaning pensions will no longer be a tax-efficient vehicle to pass wealth on.
For clients who die after age 75 and whose estates fall into the scope of IHT, this can result in their beneficiaries suffering a double tax impact when accessing the pension (IHT on the pension fund and income tax on death benefits).
Who can receive benefits on a member’s death?
Making nominations is important to ensure your client's wishes are clear. Without a nomination, the benefit options on death are more limited. The scheme administrator cannot use their discretion to give flexi-access to anyone else if there is a nomination on file or a dependant exists.
Lump sums
- A dependant
- Any other beneficiary nominated by the member
- Any other beneficiary chosen at the discretion of the scheme administrator
Beneficiary drawdown
- A dependant
- Anyone nominated by the member on their expression of wish
Beneficiaries’ drawdown
- Beneficiaries/nominees don’t need to be financial dependants for the future.
- Can be passed on in perpetuity.
- Beneficiaries flexi-access drawdown – tax treatment depends on date of death of the member.
- Not part of beneficiaries’/nominees’ own Lifetime Allowance.
Beneficiary drawdown within the CRA has no age restrictions, meaning beneficiaries under the age of 18 are able to access this facility.
Death benefit taxation
Death benefit taxation is due to change from 6 April 2027. The information below reflects current tax rules only.
|
Uncrystallised or crystallised |
Death before age 75 | Death after age 75 |
|
Lump sum death benefit |
Tax-free* | Tax at beneficiaries’ marginal rate of tax** |
|
Beneficiary drawdown |
Tax-free | Tax at beneficiaries’ marginal rate of tax |
* If paid within two years, and is subject to the Individual's Lump Sum and Death Benefits Allowance – any excess will be taxed at marginal rate income tax
** For a Trust (45%)/for a charity lump sum death benefit (conditions apply) tax-free
Approver: Quilter May 2026
Q 00965/206/17005