Reaching age 75 - our top five frequently asked questions
Since 6 April 2024, the lifetime allowance age‑75 tests no longer apply. Tax‑free pension lump sums are now assessed under the lump sum allowance (LSA) and lump sum and death benefit allowance (LSDBA) at relevant benefit crystallisation events (RBCEs), and age 75 remains primarily a planning milestone. These are the top five questions we are asked on this subject.
On death after age 75 how are death benefits taxed if paid to an individual?
Regardless of whether the benefits are uncrystallised or in drawdown after age 75, the beneficiary will be subject to income tax on any death benefits taken.
Death after age 75 is not a RCBE as no tax-free benefits can be paid on death after age 75.
Can an individual take a pension commencement lump sum after age 75?
Yes. If pension scheme rules allows the individual to remain invested after age 75, it is possible to take a pension commencement lump sum after age 75.
Care should be taken as on death after age 75 as any benefits taken are taxable, there is no tax-free element. The right to a pension commencement lump sum ends when the individual dies. It does not pass to a beneficiary.
It is important to look at all taxes that can apply, if a pension commencement lump sum is taken. If the individual dies before the money is spent, they may be a liability to an inheritance tax charge, which may be more than the income tax charge on beneficiary drawdown.
If the benefits are paid to a discretionary trust on death after age 75 what tax charge applies?
The provider will apply the special lump sum death benefits charge of 45% before paying the benefits to the trust.
This charge can be used as a tax credit by the ultimate beneficiary of the trust assets to offset their own income tax liability.
PTM073010: Death benefits: lump sums: tax on authorised lump sum death benefits (opens in a new window)
What RCBEs can occur on or after age 75?
Since the abolition of the lifetime allowance, there are only 2 RCBEs that can happen on or after an individual’s 75th birthday
An individual becoming entitled to:
- a pension commencement lump sum, or
- an uncrystallised funds pension lump sum
It is only the tax-free element of the uncrystallised funds pension lump sum that counts against the LSA and the LSDBA.
Why don’t lump sum death benefits paid on death after age 75 count against the LSDBA?
Only tax-free benefits are tested against the LSDBA. As death benefits on death after age 75 are taxed, they do not count against the LSDBA.
Disclaimer
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.
All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.