“If you die before your seventy-fifth birthday your pension will be passed on to your beneficiaries tax free, while if you die after that point, the benefits will be taxed, in most cases, according to the recipients' own tax rate,” says Mike Morrison, Head of Platform Marketing, AJ Bell. “Pension holders will be able to nominate who gets to inherit and in what proportion and any beneficiaries can in turn pass on the savings pot when they die, assuming it has not been exhausted. Passing the money onto children or grandchildren could potentially further lessen any tax hit.”
The key points of the new death benefits regime are as follows:
Death benefits can be paid to any beneficiary |
If you die before 75, benefits will be paid tax-free, if beneficiaries are designated within a two-year period |
If you die after 75 or benefits are not designated within two years, benefits will be subject to tax |
When a beneficiary dies any remaining assets/funds can be passed on again |
Any dependant's pensions that are in payment as of 5 April 2015 will continue to be taxed |