Prior to April 2015, if a pension investor died before the age of 75 (in drawdown), there was a 55 per cent income tax charge if death benefits were taken as a lump sum. From April 2015, such lump sum payments on death are tax-free (regardless of whether the investor is in drawdown).

In addition, if a pension investor died after the age
of 75, lump sum death payments were taxed at a rate of 55 per cent, even if the investor was not in drawdown. This rate has now been reduced to 45 per cent for the tax year 2015/16. For the tax year 2016/17 onwards it is proposed that the benefit will be taxed at the recipient’s marginal rate of tax – but that provision...

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