Pension annuity and drawdown plans
Since the Chancellor’s statement abolishing the so called ”death tax” on pension drawdown plans there has been much conjecture and some confusion as to the tax treatment of benefits arising on death under different types of plan. We hope the following table clears up some of the confusion – however we must stress that the detail given is based on the tax regulations as they stand today.
Pension Annuity – Treatment of Death Benefits From 6 April 2015
| Date of death | Benefit Type | Tax Position | Potential Beneficiary |
| Before age 75 | Lump sum (Value protection) | Tax-free | Any beneficiary |
| On or after age 75 | Tax rate 45% from 2015/16 and at marginal tax rate from 2016/17 | ||
| At any age | Income during guarantee period or as specifieddependant’s pension) | Taxable at marginal tax rate | Any beneficiary during guarantee period. Dependant’s pension to qualifying dependants only |
Pension Drawdown Plan – Treatment of Death Benefits From 6 April 2015
| Date of death | Benefit Type | Tax Position | Potential Beneficiary |
| Before age 75 | Lump Sum | Tax-free | Any beneficiary |
| Flexible Income | |||
| On or after age 75 | Lump sum paid from drawdown plan | Tax rate 45% from 2015/16 and at marginal tax rate from 2016/17 | |
| Income (continuation of drawdown) | Taxable at marginal income tax |
ISA/NISA – Treatment of Death Benefits
| Date of death | Benefit Type | Tax Position | Potential Beneficiary |
| At any age | Lump sum | Nil income and capital gains taxFund value potentially liable for IHT | Fund value added to deceased’s estate |
