Death benefits: Discretion and how to nominate a beneficiary
This article describes how discretion works and how a nomination form (expression of wish) can be used to let the scheme administrators/trustees know the individual’s wishes as to whom death benefits should be paid to.
Our article on Direction describes what direction is and when it may be used.
Important Information
In her Autumn 2024 Budget statement, Rachel Reeves announced the government’s intention to bring unused pension funds and death benefits within the value of an individual’s estate for inheritance tax purposes from 6 April 2027.
More detail can be found in our article Inheritance tax on pension death benefits from April 2027.
The following article is correct based on the current legislation and takes no account of the government’s proposed changes.
Key facts
- Generally, paying death benefits at the discretion of the scheme administrator/trustees will mean benefits are not included in the value of the estate and therefore do not increase the inheritance tax liability.
- An individual can provide a nomination/expression of wishes form to the scheme administrator/trustees to let them know who they want their benefits paid to, but this is not binding on the scheme administrator/ trustee.
- Once a plan is set up under discretion, the individual can’t subsequently choose direction under that scheme.
- Beneficiary drawdown, if available under a plan, can only be offered to a dependant or a nominee of the deceased.
Further information
- HMRC Pensions Tax Manual PTM000001: Nominee
- HMRC Pensions Tax Manual PTM000001: Successor
- HMRC Pensions Tax Manual PTM073900 - Death benefits: lump sums: charity lump sum death benefit
- HMRC Inheritance tax manual IHTM17043 - Pensions: IHT charges: contributions made whilst in ill-health
- HMRC Inheritance tax manual IHTM14231 - Lifetime transfers: normal expenditure out of income: introduction
- HMRC Inheritance tax manual IHTM17024 - Pensions: types of pension scheme: Retirement annuity contracts (RACs)
- HMRC Pensions Tax Manual PTM071200 - Death benefits: essential principles: definition of dependant
- HMRC Pensions Tax Manual PTM073900 - Death benefits: lump sums: charity lump sum death benefit
Inheritance tax on pension death benefits from April 2027
The government announced it's intention to bring unused pension funds and death benefits within the value of an individual’s estate for inheritance tax purposes from 6 April 2027. This article looks at this further.
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.