Income Tax (Earnings and Pensions) Act 2003 section 637H

Defined benefits lump sum death benefits

Section 637H sets out the income tax treatment of defined benefits lump sum death benefits paid from registered pension schemes, with the tax outcome depending on the member's age at death, when the payment is made, and who receives it.

• Where the member dies under 75 and the lump sum is paid within two years and does not exceed the permitted maximum, no income tax arises
• Where the member dies under 75 but the lump sum exceeds the permitted maximum, or is paid after two years to a qualifying person, the excess or the whole lump sum is taxed as pension income
• Where the member dies aged 75 or over, the lump sum is taxed as pension income if paid to a qualifying person, or is subject to the special lump sum death benefits charge if paid to a non-qualifying person
• Payments to non-qualifying persons (whether the member dies under or over 75) are subject only to the special lump sum death benefits charge on the scheme administrator and not to any other income tax