RPSM11103610 - Technical Pages: Lifetime allowance: The process for testing: After member's death

Process where a BCE 7 occurs following the member’s death

[s206 and s217(2)][The Registered Pension Schemes (Provision of Information) Regulations 2006 - SI2006/567] 

Where BCE 7 is triggered following the death of a scheme member the scheme administrator paying the lump sum death benefit is not responsible for testing whether or not that individual had sufficient available lifetime allowance to cover the amount crystallising at that BCE. Neither are they responsible for accounting for any lifetime allowance charge due.

The responsibility for finding out whether the deceased individual had sufficient available lifetime allowance to cover the amount crystallising through BCE 7 lies with that individual’s personal representatives.

The recipient of the lump sum death benefit is liable for any lifetime allowance charge arising on any chargeable amount crystallising through BCE 7 due to the payment of that benefit. It is accounted for after the BCE following direct assessment of that recipient by HMRC. The scheme administrator is not jointly liable, and the scheme administrator making the lump sum death benefit payment is not expected to deduct any potential charge due before making the payment.

BCE 7 is triggered where either an uncrystallised funds lump sum death benefit or a defined benefits lump sum death benefit is paid. These are collectively referred to in the legislation as ‘relevant lump sum death benefits’ (para 16, Sch 32). Before 6 April 2011 these two forms of lump sum death benefit could only be paid where the member dies before age 75. So if the member dies on or after their 75^th birthday, nothing will ever crystallise for lifetime allowance purposes on or following their death. For more information on BCE 7 see RPSM11104800.

From 6 April 2011, an uncrystallised funds lump sum death benefit or a defined benefits lump sum death benefit can be paid after age 75. It remains the case that if the member dies on or after their 75th birthday, nothing will crystallise for lifetime allowance purposes on or following their death as there can be no BCE after age 75 apart from BCE 3 (see RPSM11102070). So payment of such relevant lump sum death benefits where the member dies on or after their 75th birthday does not trigger a BCE 7. However, the scheme administrator has a liability to the special lump sum death benefits tax charge (at the rate of 55%) when such lump sums are paid on the member’s death where the member dies after reaching their 75th birthday. So the scheme administrator will pay out the lump sum after deducting the tax due under the special lump sum death benefits charge. For more information on BCE 7 see RPSM11104800 and on the special lump sum death benefits charge see RPSM04101110.

Multiple relevant lump sum death benefit payments

Where more than one relevant lump sum death benefit is paid following the death of an individual, whether from the same or different schemes, any lifetime allowance charge liability arising following the payment of those benefits is apportioned equitably between the (potentially) different recipients of those benefits.

See RPSM11105500 for more information on liability for the lifetime allowance charge following the member’s death.