Pension Death Benefits Changes 2017/18?

Good Afternoon everyone

I'm looking to pick your brains on the proposed changes to the tax on payment of pension benefits after next April.

My adviser has said that the 40% tax charge is being removed but I can't find an 'official' document saying so.

To add context, my client wants to pass his pension directly to his children (not a penny to his ex-wife) and we're concerned that they will be too young to manage the monies should he die in the near future and his wife would have control. Under the current rules, payment to a trust would suffer a substantial tax charge and if this is changing soon we want to be able to give the client as much info as possible to make his decision.




  • I hadn't heard about this. Worth calling a provider tech support (Canada Life and Standard Life would be good for this). Please share what you find out...
    Chartered Financial Planner FPFS APP Chartered MCSI
    Head of Technical at EQ Investors

  • OK, So I spoke to my adviser and he sent me this link:

    The bit about taxation in the future is the last paragraph. The plan is to make lump sums taxable at the recipient's marginal rate.

    Which, perhaps, isn't news to anyone...

    There's more in the Scottish Widows Tech Talk
  • Ah, seems like a bit of confusion on the part of the adviser then! That last paragraph is now law. pre 75 - tax free. post 75 - marginal rate. Haven't heard any different about payments into Trust though, like Dan has said above.

    Just a quick question, when you mention ex wife and wife has the client remarried or is it still the ex wife you are referring to? It's just that, as far as i can tell, a good nomination form for the children would remove any need for a Trust if it is an ex wife. The ex wife would unlikely be considered a dependent but it is still a grey area (case law would be important here) if she tried to claim her right to the pension funds. The client's Will would need to be pretty clear too to remove any doubt but i am far from an expert on this. If he has remarried, then the current wife would likely be considered a dependent and then a Trust would probably still be useful if he doesn't want her having any right to the pension fund. That all falls to the scheme administrators and how they feel about the nomination forms they have on file. Obviously, they can use a large amount of discretion so do not have to follow an expression of wish form if they don't want to.

    On a side note, If the children are over 23 they'd be considered 'nominees' but under 23 they are considered 'dependents' and previously upon reaching 23 If that child dependant turned 23 and had failed to withdraw the full amount of the drawdown fund in time (on which they may or may not have paid their marginal rates of tax depending on the age of the parent at death) then there are only two potential situations; withdraw and pay an unauthorised payment charge (55%) or leave the fund and it can be passed on to that child dependant’s beneficiaries (if they have any). This has been sorted by the Government at the last budget but isn't actually law until royal assent for the finance bill has passed.

    Hope this helps.
  • P.S. It is law as soon as royal assent is given, but this has been delayed possibly until October.
  • Hi @Jamie_Barnes ;

    Thanks for taking the time to respond. Having spoken to the SIPP provider they have said that the would respect the Expression of Wish as far as the can but if it was contested they would then refer to the client's Will. 

    I believe we will recommend that the client nominates his children and also makes his Will very clear with regards to his ex-wife. 

    Looks like my Adviser was reading more into it than necessary. Always good to check legislation though, especially because it changes so often!

    Thanks again.

  • I believe that the issue here is that you are looking at passing the death benefits into trust. The trust is NOT an individual and this is important.

    2015 summer budget introduced:

    With effect from 6 April 2016, (provided that the draft legislation makes it onto the statute books unamended), lump sum death benefits from those aged 75 or over, or paid out after two years following the death of someone aged under 75, will not be subject to the 45% tax charge, but will instead be taxed as pension income, at the recipient’s marginal rate of income tax.

    However, where the recipient is not an individual, (defined in the legislation as a ‘non-qualifying person”), the 45% tax charge will continue to apply. And one example of a ‘non-qualifying person’ is a spousal bypass trust.

    With regards to all things pensions based I would recommend that you always refer to the HMRC Pensions Tax Manual.

    In respect of this issue PTM073010 is a good place to start. I am not aware of any pending change to this section of the PTM.

     However, the planning requirements may override any tax charge to support use of the trust. I would have thought that exploring p[assing death benefits to children via pension route would be worthwhile.

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