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

Flexi-access drawdown lump sum death benefits

Section 637M sets out the income tax treatment of flexi-access drawdown lump sum death benefits paid from registered pension schemes, with the tax outcome depending on the member's age at death, how quickly the benefit is paid, and who receives it.

• Where the member died under age 75 and the lump sum is paid within two years to a qualifying person, only the amount exceeding the member's available lump sum and death benefit allowance is taxed as pension income
• Where the member died under age 75 but the lump sum is paid after two years, 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
• Where the member died 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 on the scheme administrator if paid to a non-qualifying person
• The "member" for these purposes may be the original scheme member or, where the drawdown fund has passed through generations, the dependant, nominee or successor on whose death the lump sum becomes payable