RPSM10105250 - Technical Pages: Death benefits: Lump sums pre 6 April 2011: Member dies aged under 75: Uncrystallised funds and unsecured pension fund are held in same arrangement
This guidance only covers the position where the member died before 6 April 2011. If the member died on or after 6 April 2011 see RPSM10106000.
Where uncrystallised funds and unsecured pension fund are held in same arrangement
Where both uncrystallised funds and unsecured pension fund are held in an arrangement at the point the member died both elements may be paid as a lump sum death benefit.
The lump sum paid from the uncrystallised funds will be an uncrystallised funds lump sum death benefit. It will not be subject to any tax charge, unless a chargeable amount crystallises following the payment.
The lump sum paid from the unsecured pension fund will be an unsecured pension fund lump sum death benefit, and taxed at 35%. This payment will not be tested for lifetime allowance purposes through BCE 7.
If the uncrystallised funds are being used to provide a lump sum death benefit this does not mean that the unsecured pension fund must be paid as an unsecured pension fund lump sum death benefit. Similarly if the unsecured pension fund is being used to provide a lump sum death benefit then this does not mean the uncrystallised funds must be paid as an uncrystallised funds lump sum death benefit.
Example
Barry dies aged 70. When he died, Barry was in receipt of an unsecured pension. The unsecured pension fund held at that time stood at £90,000. Barry also held uncrystallised funds in the arrangement worth £45,000 at the point of death.
The scheme finally distributes benefits from the arrangement a year later. It is decided that both funds will be distributed as a lump sum death benefit.
The unsecured pension fund at the point of payment now stands at £100,000. This is paid as an unsecured pension fund lump sum death benefit. The payment is subject to a 35% tax charge, which the scheme administrator deducts before payment.
The uncrystallised funds now stand at £50,000. This is the level of uncrystallised funds lump sum death benefit paid. There is no tax charge, but a lifetime allowance test is triggered (through BCE 7), with £50,000 of Barry’s lifetime allowance crystallising immediately before the point of death.
Note: Although not an issue in the example, the payment of the uncrystallised funds lump sum death benefit is subject to the two year time limit on distribution, whereas the payment of the unsecured pension fund lump sum death benefit is not.
| Glossary (RPSM20000000) |
