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

Annuity protection lump sum death benefits

Section 637K sets out the income tax treatment of annuity protection lump sum death benefits paid from registered pension schemes, with the tax consequences depending on the member's age at death and the identity of the recipient.

• Where the member dies under age 75, the lump sum is tax-free up to the available lump sum and death benefit allowance; any excess is taxed as pension income
• Where the member dies aged 75 or over, the full lump sum is taxed as pension income if paid to a qualifying person (broadly, an individual or a charity)
• Where the member dies aged 75 or over and the payment goes to a non-qualifying person (such as a trust or a company that is not a charity), the special lump sum death benefits charge applies to the scheme administrator instead
• The "permitted maximum" that can be paid tax-free is the amount of the member's lump sum and death benefit allowance that remains available immediately before the payment is made