RPSM10303020 - Scheme Administrator Pages: Death benefits: Payment of lump sums: Member or a dependant dies aged under 75: Taxation of an unsecured pension fund lump sum death benefit

This guidance only covers deaths up to 5 April 2011. If the member reached age 75 between 22 June 2010 and 5 April 2011 please also read the guidance at RPSM17100000 onwards.

If the member died on or after 6 April 2011 see RPSM10106000.

Member or a dependant dies aged under age 75: Taxation of an unsecured pension fund lump sum death benefit

If a dependant becomes entitled to a dependants’ unsecured pension following the death of the member and they too die before reaching the age of 75, any remaining dependants’ unsecured pension fund left on their death may be paid as an unsecured pension fund lump sum death benefit. See RPSM10104530 and the example in RPSM10104930.

Where an unsecured pension fund lump sum death benefit is paid the scheme administrator becomes liable to a charge to income tax at the rate of 35% in respect of the amount of payment. This is called the legislation as a special lump sum death benefits charge.

The special lump sum death benefits charge will not apply to any part of the lump sum under the payment of a lump sum under a pension guarantee in existence on 5 April 2006 - see RPSM10105530.

Where the lump sum death benefit is paid by an insurance company they become liable for the charge due as if the insurance company was the scheme administrator.

The scheme administrator will deduct the charge before making the payment - RPSM04101110 explains how the scheme administrator accounts for the charge due.