Part 4: Income tax, corporation tax and capital gains tax Section 21: Pensions: special lump sum death benefits charge Background note
This section makes the tax system fairer by reducing the tax payable on taxable lump sum death benefits when an individual dies age 75 or above with pension savings in a registered pension scheme.
	If the individual dies under the age of 75 lump sum death benefits are usually exempt from tax. The exception is where the individual dies under age 75 but the scheme administrator does not pay the lump sum within two years of becoming aware of the individual's death. In that case certain types of lump sum death benefit are taxable.
	Tax is charged at a flat rate 45% and is payable by the scheme administrator, the person responsible for the tax affairs of the registered pension scheme.
	This section imposes the 45% tax charge on the taxable lump sum death benefit only if it is paid to a "non-qualifying person".
	The effect of this change is that where certain taxable lump sum death benefits are paid to an individual who is also the beneficiary, from 6 April 2016 they will not be taxed at a flat rate 45%. Instead, under section 22 they will be taxed as pension income and will be subject to the individual's marginal rate of income tax.
	The final amount of tax payable will be the same for an individual who receives the lump sum death benefit through a trust but they will need to claim a deduction against their own income tax for the 45% tax paid on the lump sum before it was paid to the trust.
	This section also removes the potential for a lifetime allowance tax charge where a defined benefits lump sum death benefit is taxable, even though it is paid in respect of an individual who dies under age 75, because the scheme administrator did not pay the lump sum within two years of becoming aware of the individual's death. This prevents the amount that exceeds the lifetime allowance being taxed twice.