You may have to pay tax on payments you get from someone elses pension pot after they die.
There aredifferent rules on inheriting the State Pension.
The person who died will usually havenominated you(told their pension provider to give you money from their pension pot).
But sometimes the provider can pay the money to someone else, for example if the nominated person cannot be found or has died.
A pension from adefined benefitpot can usually only be paid to a dependant of the person who died, for example a husband, wife, civil partner or child under 23. It can sometimes be paid to someone else if the pension schemes rules allow it – but it will be taxed at up to 55% as anunauthorised payment.
If you inherit adefined contributionpot you can nominate someone to get any money you do not use before your death. The money must be in aflexi-access drawdown fundwhen you die.
age of the pension pots owner when they died
Annuity or money from a newdrawdown fund(set up or converted and first accessed from 6 April 2015)
Money from an old drawdown fund (acappedfund or a fund first accessed before 6 April 2015)
You may also have to pay tax if the pension pots owner was under 75 when they died and any of the following apply:
youre paid more than 2 years after the pension provider is told of the death
they had pension savings worth more than 1,055,000 (thelifetime allowance)
they died before 3 December 2014 and you buy an annuity from the pot
If youre paid more than 2 years after the provider is told of the death
You pay tax if the pots owner was under 75, and its more than 2 years after the provider is told of their death when you get either:
an annuity or drawdown fund from an untouched pot (the person who died did not take any money from it)
most types of lump sum fromdefined contribution or defined benefitpots
In both cases, the provider will deductIncome Taxbefore youre paid.
You may have to pay a lifetime allowance tax charge. You pay the charge if the amount you get is more than the persons availablelifetime allowance.
The amount you pay may change if someone else starts to get payments from the same pot.
You will not pay lifetime allowance tax charge if you got the pot more than 2 years after the provider was told about the death.
HM Revenue and Customs (HMRC) will send you a bill, after theyre told about the payment bythe person dealing with the estateof the person who died.
The person dealing with the estate must tellHMRCwithin 13 months of the death or 30 days after they realise you owe tax (whichever is later).
If you buy an annuity from the pot, the provider takesIncome Taxoff payments before you get them.
You do not usually payInheritance Taxon a lump sum because payment is usually discretionary – this means the pension provider can choose whether to pay it to you.
Ask the pension provider if payment of the lump sum was discretionary. If it was not, you may have to pay Inheritance Tax.
If you fill in aSelf Assessment tax returneach year, youll get a refund when youve sent your return.
If you do not, the form you fill in to claim your refund depends on whether the payment:
used up the pension pot andyou have no other incomein the tax year
used up the pension pot andyou have other taxable income
did not use up the pension potand youre not taking regular payments
Theres a different way to claim ifyour payment came from a trust.
Dont include personal or financial information like your National Insurance number or credit card details.
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