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

Uncrystallised funds lump sum death benefits

Section 637J sets out the income tax treatment of uncrystallised funds lump sum death benefits paid from registered pension schemes, with the tax outcome depending on the member's age at death, when the lump sum is paid, and to whom it is paid.

• Where the member dies under age 75 and the lump sum is paid within two years and does not exceed the permitted maximum, no income tax arises on the payment.
• Where the member dies under age 75 but the lump sum exceeds the permitted maximum (even if paid within two years), or is paid after two years to a qualifying person, the excess or the full amount is taxed as pension income.
• Where the member dies aged 75 or over and the lump sum is paid to a qualifying person, the entire amount is taxed as pension income.
• Where the lump sum is paid to a non-qualifying person (regardless of the member's age at death), the special lump sum death benefits charge applies to the scheme administrator instead of income tax on the recipient.