Newsletter Summer 2016

Tax on inherited pension pots

The taxation of pensions has changed significantly in the last two years. In particular, the facility to pass on a pension entitlement, known as a ‘death benefit’, has been reformed.

For deaths before 6 April 2015, the situation was quite complicated. Now the tax treatment depends how old the deceased was when they died.

Essentially, if the deceased was aged 75 or over, the person who is entitled to receive the pension fund after death (the beneficiary), is taxed on the amount they receive as if it was part of their income. If the deceased was under 75, a lump sum or pension income paid to the beneficiary is paid free of income tax.

This is straightforward, but HMRC’s computer has not caught up with the new rules. Sometimes tax is deducted from a pension payment to a beneficiary when no tax is due. If this happens to you, please talk to us so that we can help you get a refund.