RPSM11104820 - Technical Pages: Lifetime allowance: Valuing benefits on BCEs: Relevant lump sum death benefits - BCE 7: Effective date

Effective date of BCE 7 and the amount crystallising

The effective date of BCE 7 is the date of payment of that lump sum death benefit. This is the case whether one or more relevant lump sum death benefits are paid following the death of the same individual, from one or more registered pension scheme.

However, where more than one relevant lump sum death benefit is paid then, for the purposes of calculating the availability of the deceased’s lifetime allowance (and only for this purpose), the BCEs are all treated as occurring simultaneously, immediately before the death of the member. This is the case even though the actual lump sum death benefits giving rise to the BCEs will be paid after the member’s death, probably at different times. This is to ensure that any liability arising following the BCEs is proportioned equitably between the various recipients.

The event occurs no matter who the lump sum is paid to.

RPSM11105530 gives an example.

[s219(7) as amended by FA 2007 Schedule 20 paragraph 10)]

Where a pension commencement lump sum was paid in anticipation of entitlement to a relevant pension (see RPSM11102055), but the member dies before the entitlement to the pension arises, the entitlement to the pension commencement lump sum will be regarded as arising immediately before the death of the member. This pension commencement lump sum will be a BCE6 and is tested against the lifetime allowance of the deceased member before any lump sum death benefits crystallising under BCE7 as above.

The lifetime allowance that applies in the case of the death of the individual before 6 April 2012 if the lump sum is not paid until on or after that date

As the effective date of BCE 7 is the date of payment of that lump sum death benefit, the availability of the deceased’s lifetime allowance is normally calculated by reference to the lifetime allowance for the tax year in which the lump sum is paid. Exceptionally, if the member dies before 6 April 2012 but the lump sum is not paid until on or after that date, the standard lifetime allowance at the time of the BCE 7 is £1.8 million (the standard lifetime allowance for the tax year 2011-12) and not the standard lifetime allowance for the tax year in which the lump sum was paid. So, if say the member died on 1 April 2012 but the lump sum is not paid until 1 June 2012, the lifetime allowance for the purposes of the BCE 7 is £1.8 million and not £1.5 million (the standard lifetime allowance for tax year 2012-13).

The amount that crystallises

The amount crystallising is simply the amount of the relevant lump sum death benefit the recipient (or recipients) receives.

Unlike all the other BCEs, which occur whilst the member is alive, there are different procedures followed when dealing with BCE 7. Accountability for any lifetime allowance charge due takes place once the payments have been made, i.e. once the level of payment is known. So the scheme administrator will not be deducting any lifetime allowance charge due from the payment.

For an example see RPSM11103710.

[s219(7) and article 20 of the Taxation of Pension Schemes (Transitional Provisions) Order - SI 2006/572] 

For the avoidance of doubt where the first BCE that occurs after 5 April 2006 is BCE 7 any pension in payment before 6 April 2006 (a pre-commencement pension) must be taken into account when calculating the member’s available lifetime allowance (see RPSM11104910 and RPSM11104920).