A member dies July 2025 (after age 75) and their unused pension should be “assigned to appropriate beneficiaries” HMRC guidance explains how the remaining pension benefits can be paid out but seems silent on timescale, can the trustees use their “discretion” to wait for a good few years and see what happens 2027 or in this case 2028, are there any time limits?
2028 a member who is French resident may have the opportunity to take their whole fund out (perhaps including the deceased members fund) at just 7.5% tax (Prélèvement Forfaitaire Unique), of course, the French may change the rules in the next three years.
The 2year limit is imposed where the deceased member was under 75 at death and if exceeded the lump sum payments cease to be tax-free. Where the member was over 75 there is no time limit and amounts paid are taxable at the recipients’ marginal income tax rates, but with an initial deduction at 40%. Payments to a “non-qualifying person” are taxable at a flat rate of 45% non-refundable but with an exception for a DT which can make distributions to be beneficiaries who may be able to claim a repayment. See the informative PITM07310 and 073200. This deduction of tax is important to a non-resident recipient.
A recipient who is resident only in France for French tax will be a French resident for the UK-France Treaty. He is not the employee so Article 18 (Pensions) will not apply. Article 23 (Other income) will apply to make a direct payment to him taxable only in France but a payment from a trust is excluded. That would require him to rely on Article 24 and be taxed in the UK with a credit for the French tax payable on the same income. He will be entitled to a personal allowance for UK tax: INTM334580. Under ss.811-4 ITA 2007 a non-resident must accept liability in principle for tax on income deducted at source, though may be entitled to a refund if the actual liability is less ( after PA, basic rate, DTR).
Thank-you for the time taken to reply that’s very succinctly cleared that one up and the pointers to relevant the pension tax manual provisions a great help (well a great deal more reading as well).