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

Drawdown pension fund lump sum death benefits

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

• Drawdown pension lump sum death benefits are generally free of income tax, but exceptions apply depending on the member's age at death, the timing of payment, and the identity of the recipient.
• Where the member dies under 75 and the lump sum is paid within two years but exceeds the member's available lump sum and death benefit allowance, only the excess is taxed as pension income.
• Where the member dies under 75 and the lump sum is paid after the two-year window, or where the member dies aged 75 or over, the full amount is taxed as pension income if paid to a qualifying person, or is subject to the special lump sum death benefits charge on the scheme administrator if paid to a non-qualifying person.
• The two-year period runs from the earlier of the date the scheme administrator first knew of the member's death or the date they could reasonably have been expected to know of it.