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Reaching age 75 - our top five frequently asked questions
We look at reaching age 75 in our series of top five FAQs on pensions technical topics.
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 benefits taken.
Death after age 75 is not a relevant benefit crystallisation event as no tax-free benefits can be paid on death after age 75.
Can you take a pension commencement lump sum after age 75?
Yes. If the product allows the individual to remain invested after age 75 then 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 deduct a tax 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 relevant benefit crystallisation events can occur on or after age 75?
Since the abolition of the lifetime allowance there are only 2 relevant benefit crystallisation events that can happen on 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 lump sum allowance and the lump sum and death benefit allowance.
Why don’t lump sum death benefits paid on death after age 75 not count against the lump sum and death benefit allowance?
No benefits paid on death after age 75 are tax-free and it is only tax-free benefits that are tested against the lump sum and death benefit allowance.
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.