I though would write a short technical brief after the issue of pension death benefits and trusts was raised at our weekly adviser meeting on Monday.
Lump sum pension death benefits paid from registered pension schemes on death after age 75 are taxed at 45% in 2015-16.
It was expected that this tax rate would change for lump sums paid from 2016 onwards so as to be taxed at the recipient’s own income tax rate(s) and this has now been confirmed in the Budget.
Where lump sum pension death benefits are taxable they will be subject to the recipient’s marginal rate of tax where the lump sum is paid directly from the pension scheme to an individual who is the ultimate beneficiary.
The lump sum will be taxed as pension income and tax will be deducted under PAYE.The tax charge will remain at 45% where the taxable lump sum death benefit is paid to someone other than an individual who is the ultimate beneficiary, such as a trust or a company.
The last paragraph is the most important as we already knew that pension death benefits would be taxed on the beneficiary.
If there is a trust in place for any client (most likely a bypass trust) then it will require review, as this may not now be the best way to distribute the assets to their intended beneficiaries.
We are happy to chat this through with anyone in this position or who has clients with trusts in place.
This is not intended as advice and should not be taken as such.
2019: A year in review for the markets
The door has not quite closed on 2019, just yet. Alongside moving office, growing the team and hosting more than a handful of events, the markets around us have been constantly moving and not a day goes by where we don't reflect on how far things have come. Read about the highlights of the market this year (that we thought might be worth mentioning…).Read more