RPSM03109020 - Technical Pages: Protecting pension rights from tax charges: Death benefits: Primary protection - BCEs

Primary protection: Lump sum death benefits that are benefit crystallisation events

The payment of a defined benefits lump sum death benefit or an uncrystallised funds lump sum death benefit is a benefit crystallisation event. The payment of such a lump sum may result in a liability to the lifetime allowance charge. However if such a lump sum is paid in respect of a member who died on or after 6 April 2011 having reached the age of 75 the payment of the lump sum is not a benefit crystallisation event, but the lump sum will be subject to the special lump sum death benefits charge at the rate of 55%.

Where a lump sum death benefit is paid that is a benefit crystallisation event there will be no liability to the lifetime allowance charge if the amount of the lump sum does not exceed the amount of the deceased member’s available primary protection. The value of the deceased member’s primary protection has been calculated on the basis of the pension and lump sum paid or payable to the individual on 5 April 2006 - see RPSM03102010.

Where the amount of the lump sum exceeds the deceased member’s available primary protection the recipient of the lump sum can notify HMRC under the provisions of paragraph 11A Schedule 36 FA 2004 so that the value of the primary protection can be increased (where appropriate) - see RPSM03109046.

The recipient of a lump sum death benefit cannot notify their intention to rely on a higher level of primary protection unless the deceased member (or their personal representative) has already validly notified primary protection - see RPSM03100520.

The value of primary protection will only be increased if the value of the lump sum death benefit prospectively payable had the deceased member died on 5 April 2006 is greater than the value of the primary protection previously calculated.

Paragraph 11B Schedule 36 FA 2004 defines the prospective death benefits on 5 April 2006 as 'pre-commencement rights to death benefits'. RPSM03109022 explains what 'pre-commencement rights to death benefits' are.