Pension death benefit trusts
Produced in partnership with Kevin Gude of Gowling WLG

The following Pensions practice note produced in partnership with Kevin Gude of Gowling WLG provides comprehensive and up to date legal information covering:

  • Pension death benefit trusts
  • Types of pension scheme or arrangement
  • Lump sum tax charges
  • Authorised payments
  • Lump sum death benefit charges
  • Exercising the trustees’ discretion or power to assign
  • Inheritance tax
  • Recipient trusts
  • Practical points

Pension death benefit trusts

FORTHCOMING DEVELOPMENT: The Office of Tax Simplification (OTS) has released a report outlining recommendations to make considerable aspects of the design of inheritance tax (IHT) simpler, more intuitive and easier to operate. One of the recommendations is that the government should consider ensuring that death benefit payments from term life insurance are IHT free on the death of the life assured without the need for them to be written in trust. In relation to pensions, the OTS says that IHT could similarly be simplified by changing the current anomalous position under which some pension policies can be included within an estate for IHT purposes while other comparable pension savings, set up under discretionary trust, are not. The OTS notes that in relation to defined contribution pensions, the main reason discretionary trusts are currently used to provide death benefits is to keep such pension savings outside IHT. For more information, see: OTS Inheritance Tax review: Simplifying the design of the tax, Chapter 6, pp 52–55.

This Practice Note addresses how trusts can be used when paying lump sum death benefits from the pension arrangements listed below in order to simplify the payment and moderate any potential tax charges. It considers first how the income tax treatment of the payment can be affected by the type of pension scheme or

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