RPSM03307060 - Scheme Administrator Pages: Protecting pension rights from tax charges: Benefit payments - other forms of protection: Dependant’s death pre 6/4/06

Lump sum paid in respect of a dependant’s death before 6 April 2006

[Article 41 The Taxation of Pension Schemes (Transitional Provisions) Order 2006 –SI 2006/572 - as amended by Article 5 The Taxation of Pension Schemes (Transitional Provisions)(Amendment) Order 2006 – SI 2006/1962] [The Registered Pension Schemes (Authorised Member Payments)(No.2) Regulations 2006 – SI 2006/571]

Before 6 April 2006 a personal pension scheme could pay a lump sum death benefit of the death of a dependant of a former member in certain circumstances.

Where a personal pension scheme automatically becomes a registered pension scheme on 6 April 2006 it can still pay a lump sum death benefit on the death of a dependant of a former member if the following payment conditions are met.

Payment conditions

The lump sum death benefit is paid

• within two years of the date the scheme administrator could reasonably have known of the dependant’s death,
• in accordance with the scheme rules as they stood either

• the payment would not have led to HMRC withdrawing approval of the scheme.

The lump sum benefit is an authorised payment but it is not a benefit crystallisation event and so it cannot be liable to the lifetime allowance charge.

The lump sum will be taxable under s648 ICTA 1988 at 35%. The scheme administrator will be liable to this tax and must notify HMRC of any tax due by 5 May following the end of the tax year in which the payment is made.