Inheritance Tax & Pension Death Benefits

Pensions Death Benefits from Defined Contribution or Money Purchase pensions but not Final Salary Pensions.

Pension death benefits do not form part of your estate of inheritance tax and are not distributed under the terms of your will or intestacy. When you commence a pension you will nominate beneficiary or beneficiaries whom you wish to benefit in the event of your death beyond retirement.

Tax Status of Pension Death Benefits

If you die before retirement, the funds are paid to your beneficiaries free of inheritance tax. However, if you die after commencing benefits or after age 75, there will be a tax of 55%, unless your spouse or a dependent child continues the pension.

Paying benefits to individuals

Benefits are paid to individuals free of inheritance tax; they then form part of the beneficiary or beneficiaries’ estate. A financially advisable tactic might be to pay the benefits to your children rather than your spouse (although your spouse would have no access to the funds).

Paying benefits to a trust

Another advisable strategy is to set up a trust to receive your pension benefits in the event of death before retirement. The benefit of the trust is that it protects against hostile creditors, for example bankruptcy, care fees and divorce. It is destined to reach your children beyond the life of your surviving spouse, rather than a future spouse[EB1] . It also preserves the inheritance tax benefits for another generation.

Inheritance Planning Company is not a financial advisory company and cannot provide investment advice. We can advise on death benefits only.

Click here for a Trust Fact Sheet providing more detailed information if you are:

  • Married/partner with children
  • Single with children
  • Married or single without children
  • You wish to speak with one of advisers
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