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

Pension protection lump sum death benefits

Section 637I sets out the income tax treatment of pension protection lump sum death benefits paid from registered pension schemes, with the tax outcome depending on the member's age at death, the amount paid, and the type of recipient.

• A pension protection lump sum death benefit paid from a registered pension scheme is generally free from income tax.
• Where the member dies under age 75, any amount exceeding the member's available lump sum and death benefit allowance is taxed as pension income.
• Where the member dies aged 75 or over and the payment is made to a qualifying person, the entire lump sum is taxed as pension income.
• Where the member dies aged 75 or over and the payment is made to a non-qualifying person (such as a trust or company), the lump sum is instead subject to the special lump sum death benefits charge on the scheme administrator.