Death benefits from a defined contribution scheme (before 6 April 2015)

By Tolley
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The following Employment Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Death benefits from a defined contribution scheme (before 6 April 2015)
  • Introduction
  • Death benefits – before benefits have been crystallised
  • Death benefits – after benefits have been crystallised

Introduction

On the death of a scheme member or a beneficiary, a registered pension scheme is only authorised to pay out benefits to a beneficiary following the death either as a pension death benefit or as a lump sum death benefit. The type of benefits paid will depend on the scheme rules and the type of arrangement the benefits are being paid from.

As with the payment of benefits in a member’s lifetime, the legislation sets out the authorised forms of pension and lump sum death benefits that may be paid following a member’s death, the circumstances in which those benefits can be paid, and the conditions and restrictions that the payments of the benefits must meet or follow in order for them to be ‘authorised’.

These are referred to in the legislation as ‘the pension death benefit rules’ and ‘the lump sum death benefit rules’.

Death benefits – before benefits have been crystallised

Where a member of a defined contribution scheme died before taking benefits death benefits under the rules applicable until 5 April 2015 could be paid as:

  • a lump sum, (an ‘uncrystallised funds lump sum death benefit’) payable at the discretion of the scheme administrator / trustees to the members' dependants or legal personal representatives. The lump sum was tested against the lifetime allowance applicable on the members' death. If there was any excess fund over and above the lifetime allowance it was subject to tax at 55%, payable by the recipients of the lump sum death benefit.
  • pension to one or more dependants. Dependants' pensions benefits did not count towards the lifetime allowance of the deceased member. Dependants’ pensions were taxed in the hands of the recipient as pension income. They could

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