If you die in income drawdown the remainder of your pension can be passed on to your beneficiaries. Any tax to pay will depend on your age at death. If you die before the age of 75 you can pass on your pension as a tax-free lump sum or as income (if your pension provider allows it). If you die after your 75th birthday the lump sum or income will be taxed.
How much tax is there to pay?
If you die after your 75th birthday your pension will be taxed when it is passed on, regardless of whether or not you have made withdrawals or how your beneficiaries take the money. Both lump sum withdrawals and regular income (taken through income drawdown or an annuity) will be taxed at your beneficiary’s marginal rate of income tax.
How are annuities different to income drawdown?
The death benefit rules are different if you use your pension to buy an annuity. Annuities do not usually pay any income to your beneficiaries after your death. But this may be different if you apply for a joint life annuity or choose either a minimum guarantee period or value protection.
Speak to an expert about income drawdown
To find out more about our charges for income drawdown and opening a Best SIPP please get in touch:
The decision to access your pension is an important one and will affect your income and possibly your standard of living for years to come. Therefore we recommend that before any decision is made you receive regulated financial advice or get free guidance from Pension Wise.
