Part 4: Income tax, corporation tax and capital gains tax Section 21: Pensions: special lump sum death benefits charge Details of the section
Subsection (1) explains that subsections (2) to (5) amend Section 206 of FA 2004.
	Subsection (2) introduces the concept of a non-qualifying person to section 206 of the Finance Act (FA) 2004 so that the existing 45% special lump sum death benefits charge only applies where a taxable lump sum death benefit is paid to a non-qualifying person.
	Subsection (3) aligns the tax treatment of the defined benefits lump sum death benefit with certain other lump sum death benefits. Where those lump sums are not paid out within two years of the scheme administrator becoming aware that the pension holder has died, they become subject to the 45% tax charge. Before this change the lump sum would have been an unauthorised payment and subject to tax charges of up to 70% of the lump sum.
	Subsection (4) makes subsection (7) of section 206, which provides for lump sum death benefits to be subject to income tax where they are paid to a trust before being paid to an individual, subject to the provisions of new subsection (8) of section 206.
	Subsection (5) inserts new subsections (8) to (10) to section 206.
	New subsection (8) allows a taxable lump sum death benefit initially paid to a trust to be treated as the income of the individual who finally receives it. That individual will be taxed at their marginal rate on the amount that the lump sum death benefit would have been before the deduction of tax. However, they will be able to claim the 45% special lump sum death benefits charge paid on the lump sum death benefit as a deduction against their own income tax.
	New subsection (9) defines a "non-qualifying person" as a person who is not an individual or is an individual in a representative capacity. The exception is someone acting as a bare trustee.
	New subsection (10) defines "bare trustee" for these purposes.
	Subsection (6) provides the power to make regulations so that the individual who receives the taxable lump sum death benefit via a trust can receive the information they need to pay the right amount of income tax on the lump sum death benefit.
	Subsection (7) amends paragraph 16 of Schedule 32 to Finance Act 2004 which sets out which lump sum death benefits are relevant lump sum death benefits and are tested against the member’s lifetime allowance as a benefit crystallisation event 7. The amendment means that a defined benefits lump sum death benefit is only tested against the lifetime allowance if it will be paid tax-free, that is, if it is paid where the member died before age 75 and is paid within a two-year period. This prevents a potential double charge to tax.
	Subsection (8) prevents the defined benefits lump sum death benefit from being an unauthorised payment because it is paid out more than two years after the scheme administrator becomes aware of the pension holder's death.
	Subsection (9) makes consequential amendments to Schedule 16 to FA 2011 which had amended the defined benefits lump sum death benefits rules in paragraph 13 of Schedule 29 to FA 2004.
	Subsection (10) provides that the amendments made by this section have effect on lump sums paid on or after 6 April 2016.