Helpful Guides

Expert tips and guides to help you in planning your retirement.






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

 


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