Pension cash - tax position

A farmer died leaving the estate to his three sons. An asset was a small pension pot with NFU which they are happy to pay equally to the now adult beneficiaries - but with a 45% deduction for income tax. I imagine that this tax will be repayable subject to the beneficiaries tax positions & allowances? Is there any way to avoid this deduction by NFU?

Nick Dimmock

Hi Nick,

I’m assuming the farmer was 75 or over when he died, the lumps sum will be paid post tax by the provider, any tax over-paid is claimable under self-assessment.

Richard Bishop

Assuming the farmer died on or after his 75th birthday, a payment from the pension scheme to his personal representatives would be subject to a 45% special lump sum death benefits charge, which should be deducted from the payment. But a payment from the pension scheme to each of the farmer’s sons (as you describe) would be taxable at each recipient’s marginal rate of income tax. NFU should deduct and pay the tax under the PAYE system. See PTM073010 for more information. If too much tax is paid under PAYE, the taxpayers can reclaim the excess in their self-assessment tax returns.

Matthew Harrison
Withers LLP

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Are you saying that the pension pot was treated as part of the deceased’s taxable estate?

Paul Storrie
Storrie & Company