When someone dies, you will need to inform their pension provider. You may be able to claim from their pension depending on your loved one’s age, your relationship to them and the type of pension account that they held.
Accessing a State Pension should be done within the first 12 months after your loved one’s death. Often state pensions will stop being paid after the person dies, but in some cases a spouse or civil partner can inherit some of the pension.
What you get/how you claim depends on whether you reached State Pension age before or after 6 April 2016.
Accessing a Workplace Pension should be done within the first 12 months since your loved one’s death.
Defined contribution pensions, also known as a ‘money purchase’ scheme, allows an individual to build up a pension pot whilst in employment. This pot is used to pay out an income once they reach retirement age, based on how much the person and/or their employer contributed, and how much this pot has grown.
If your loved one had not yet retired, any beneficiaries can usually withdraw all the money as a lump sum and set up a guaranteed income (annuity), or set up a flexible retirement income (drawdown). This might not always be possible, so check the conditions of the pension.
Different tax rules apply when inheriting a defined contribution pension, and it depends on whether the person died before age 75.
A defined benefit pension pays an individual an income based on their salary, and how long they worked for their employer. These are less common, and tend to only apply to public sector or older workplace schemes. Each scheme is different, and any money paid out to any beneficiaries will be outlined in the rules of the pension scheme.
This type of pension often pays out a ‘dependant’s pension’ to anyone financially dependent on the deceased, including a spouse or civil partner, a partner the deceased wasn’t married to or in a civil partnership with, and/or child(ren) under 23. This payment is a percentage of what your loved one was getting, or would have received if they had not yet reached retirement age. This income is often taxable.
If the pension was a small amount, it can often be paid in a lump sum.
If your loved one had not retired:
If your loved one had retired:
If the total value of your loved one’s pension contributions is more than the lifetime allowance, you might have to pay tax on any money you inherit from this.
The lifetime allowance changes every year, but for the tax year 2021/22 it is currently £1,073,100.
Inheritance Tax is a tax you have to pay upon inheriting the estate of someone who has died, including all of their property, possessions and money. It needs to be paid by the executor. Inheritance Tax must be paid or partially paid before probate or letter of administration can be granted, although there are some exceptions. Inheritance tax is sometimes referred to as Capital Gains tax.
You will need to pay Inheritance Tax if the estate is valued at over £325,000. Usually, anything over this threshold is taxed at a rate of 40%. However, there are many exceptions to this.
For more information: gov.uk
There are many other possible assets that might need to be added to the value of the estate to comply with estate law. These include interests in trusts (which might have arisen on the earlier death of a spouse), transfers of value within the last 7 years, or gifts made at any time where the person who has died retained some kind of benefit in the asset given away, An example of this might be putting a house in the name of children, but continuing to live there or visit on holiday.
You are obliged to file a report with HMRC even if there is no tax to pay. You can do this here: gov.uk
Banks or building societies may release money out of your loved one’s account before probate or letter of administration has been issued if it is being used to pay Inheritance Tax directly to HMRC. If you are paying Inheritance Tax on property, HMRC may accept staggered payments spread over a period of time. If you pay the Inheritance Tax out of your own money, you can get a refund from the estate once probate has been granted.
Sometimes getting a professional to take over helps moves things along. We offer a range of solicitors who can help take away the pressure of dealing with estate law and wills.