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Tax on a private pension you inherit

Source: HM Revenue & Customs | 15/05/19

Private pensions can be an efficient way to pass on wealth, but it is important to consider what, if any, tax will be payable on a private pension you inherit. The person who died will usually have nominated you by telling their pension provider that you should inherit any monies left in their pension pot. If the nominated person can’t be found or has since died, the pension provider may make payments to someone else instead.

In general, if you inherit a private pension and the owner of the pension fund died before the age of 75, the benefits left in a private pension can be paid as a lump sum or drawdown income to you, with no tax to pay. If the deceased passed away after the age of 75 the pension will be taxed at your marginal Income Tax rate, so 20% if you are a basic rate taxpayer or 40% if you are in the higher tax bracket and 45% if you pay tax at the top rate. The rates may differ if you are a Scottish taxpayer.

There are restrictions on pensions from a defined benefit pot (usually workplace pensions). In these cases, the pension can usually be paid to a dependant of the person who died, for example a husband, wife, civil partner or child under 23. This rule can sometimes be changed if the pension fund allows, but the inheritance will be taxed at up to 55% as an unauthorised payment.

Take advice if you are in receipt of a relative's pension pot

The rules on inheriting a pension are complex and depend on what type it is and how old the holder was when they died. For example, you may also have to pay tax if the pension pot owner was under 75 but had pension savings worth more than £1,055,000 (the lifetime allowance) when they died. There are also important time limits that must be followed. It is also possible for a private pension you inherit to be passed down to future generations, IHT free. We can help you understand your options. Please note that the rules are different for inheriting a State Pension.

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Some accountancy websites also provide pages and pages of tax information, helpsheets, etc. We prefer to give clients personally tailored advice. So, if you want details of tax rates and allowances just go to the HMRC website on which you should find what you’re looking for. If you need more individual advice please contact us.

Below are links to websites you may find of interest, but as we like to support our local community and clients, we have included links to websites that may be of interest:

HMRC

FT

BBC

VEALE WASBROUGH VIZARDS

CESP

PRACTICE INDEX

SIMCOMM ACADEMY

More Local:

FOOTPLATE EXPERIENCE

ANGLEBURY PRESS

OFFCAMBER.CO.UK

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Sandisons is the trading name of Sandisons Limited. Registered office: Badger House, Salisbury Road, Blandford Forum, Dorset DT11 7QD.  Co. Reg. No. 05068291

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