Part 2 – Lump sum death benefits
242.Paragraphs 17 amends section 206 of FA 2004 as it relates to the special lump sum death benefit charge that arises where certain lump sum death benefits are paid where the member has reached age 75 at the time of their death. In section 2 of this Act, the charge that applies is reduced from 55% to 45%.
243.Paragraph 17(2) inserts new subsection (1ZA) into section 206 of FA 2004 which provides that references to a member and their death, are to be read as also applying to a dependant, nominee or successor and their death, so that the charge may also arise where a flexi-access lump sum death benefit is paid from a dependant’s, nominee’s or successor’s flexi-access drawdown fund, or where a drawdown pension fund lump sum death benefit is paid from a dependant’s drawdown pension fund.
244.Paragraph 17(3) inserts new subsections (1B) and (1C) into section 206 of FA 2004.
245.New subsection (1B) provides that the special lump sum death benefits charge also applies if a member dies before age 75, and a drawdown pension fund lump sum death benefit, a flexi-access drawdown fund lump sum death benefit or an uncrystallised funds lump sum death benefit is paid outside a two-year period. The two-year period starts on the date on which the scheme administrator first knew of the member’s death or, if earlier, the day when they could first reasonably have been expected to know of it. Currently where a lump sum death benefit is not paid within this period it is an unauthorised payment and is subject to tax charges of up to 70%.
246.New subsection (1C) provides that the special lump sum death benefit charge also applies if a beneficiary dies before age 75, and prescribed lump sum death benefits are paid outside the two-year period.
247.Paragraphs 17(4) and (5) and 18 make further consequential changes.
248.Paragraph 19 makes a number of amendments in connection with the uncrystallised funds lump sum death benefit.
249.Paragraph 19(1) amends paragraph 15 of Schedule 29 to remove the requirement that, to be an authorised payment, the lump sum must be paid within a two-year period.
250.Paragraph 19(2) amends paragraph 16 of Schedule 32 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 BCE 7. The amendment means that an uncrystallised funds 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.
251.Paragraph 19(3) amends section 636A of ITEPA 2003 to provide that an uncrystallised funds lump sum death benefit is subject to income tax only under section 206 of FA 2004, that is, only where either the member died after reaching age 75 or the member died before reaching age 75 and the lump sum was not paid within the two-year period.
