In the instance the owner of a private pension dies before age 75, you can generally receive the benefits as a tax-free lump sum or drawdown income. If the deceased passed away after age 75, your marginal income tax rate will apply—20% for basic rate, 40% for higher rate, and 45% for top-rate taxpayers. Scottish taxpayers may encounter different rates.
Inherited private pensions from a defined benefit pot, typically workplace pensions, have limitations. Generally, they can only be paid to a dependant of the deceased, like a spouse, civil partner, or child under 23. The pension fund may allow changes to this rule, but any inheritance may be subject to up to 55% tax as an unauthorised payment.
Inheriting a pension involves complex rules, varying based on the pension type and the holder’s age at death. Adherence to crucial time limits is also necessary.
