RPSM11105510 - Technical Pages: Lifetime allowance: Where the lifetime allowance used up: Liability when the member is dead: Relevant lump sum death benefit paid

Liability for the lifetime allowance charge where a relevant lump sum death benefit is paid (BCE 7)

[s.206, s217(2) to (5)][Reg 4, ‘case 3’, The Registered Pension Schemes (Accounting and Assessment) Regulations 2005 SI 2005 No. 3454]

Where a chargeable amount arises through BCE 7 following the payment of a relevant lump sum death benefit the liability for the arising lifetime allowance charge falls solely on the recipient (or recipients) of the lump sum payment (or payments). The scheme administrator or personal representatives of the member are not liable, unless they are also recipients of the lump sum payment.

The lifetime allowance charge applies here regardless of whether or not the recipient of the lump sum death benefit is resident, ordinarily resident or domiciled in the UK. RPSM11105090 applies equally to the chargeable amount/lifetime allowance charge arising following the payment of a relevant lump sum death benefit.

RPSM11105540 explains how the recipient is assessed.

Responsibility of the personal representatives

The personal representatives of the member are responsible for ascertaining whether a chargeable amount arose following the payment of a relevant lump sum death benefit. They only do this after the payment of any lump sum death benefit.

The scheme administrator will pay the lump sum death benefits in full, without regard to any lifetime allowance charge that may potentially be due.

Where the personal representatives identify a chargeable amount, they must report this to HMRC, who then assesses the recipient of any payment giving rise to a chargeable amount. This is explained in more detail in RPSM11105520.

Lump sum death benefit paid after age 75

For avoidance of doubt, where a defined benefits lump sum death benefit or an uncrystallised funds lump sum death benefit is paid and the member dies on or after 6 April 2011, after reaching age 75, the lump sum is not a relevant lump sum death benefit although it is an authorised member payment. A relevant lump sum death benefit is defined in the legislation for the purposes of the lifetime allowance. Since the payment of the lump sum is not a BCE 7, as the only BCE that can occur after age 75 is a BCE 3 (see RPSM11102070), the lump sum is not a relevant lump sum death benefit.

Such lump sums are instead liable to the special lump sum death benefits charge at the rate of 55% under section 206 Finance Act 2004. Tax is charged on the amount of the lump sum paid or, if the rules of the pension scheme permit the scheme administrator to deduct the tax before payment, on the amount of the lump sum before deduction of tax. The scheme administrator is the person liable to the special lump sum death benefits charge whether or not they and the person being paid the lump sum are resident, ordinarily resident or domiciled in the United Kingdom. For more information on BCE 7 see RPSM11104800 and on the special lump sum death benefits charge see RPSM04101110.

The lump sum is not treated as income for any purpose of the Tax Acts.