What is a spousal bypass trust?
A spousal bypass trust is a discretionary trust where an individual can place their lump sum death benefits. It is sometimes called a flexible trust.
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
- A spousal bypass trust is a discretionary trust where an individual can place their lump sum death benefits.
- For more complex family circumstances where a simple nomination or expression of wish does not cover the situation.
- The individual sets up the trust and nominates the trust as their preferred recipient of the death benefits.
- Pension lump sums paid to a bypass trust will suffer a 45% tax charge if the pension scheme member dies after age 75.
- The 45% tax charge can be used to offset the tax due on any payments from the trust.
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.