RPSM03307050 - Scheme Administrator Pages: Protecting pension rights from tax charges: Benefit payments - other forms of protection: Member’s death pre 6/4/06

Lump sum death benefit paid in respect of a member's death before 6 April 2006

[Article 40 The Taxation of Pension Schemes (Transitional Provisions) Order 2006 –SI 2006/572 – as amended by Article 4 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]

Where a scheme that automatically becomes a registered pension scheme on 6 April 2006 pays a lump sum benefit in respect of the death of a member before 6 April 2006 it will be an authorised payment that is not liable to the lifetime allowance charge if the following 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 member’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 payment of the lump sum is not a benefit crystallisation event and so it cannot be liable to the lifetime allowance charge.

The lump sums will continue to have the same tax treatment after 5 April 2006 as they had before 6 April 2006. So a lump sum paid from a personal pension scheme due to ‘death in drawdown’ will continue to be taxable at 35% under s648B ICTA 1988. The scheme administrator of the registered pension scheme will be liable to this tax.

Scheme administrators must notify HMRC of any tax due by 5 May following the end of the tax year in which the payment is made.