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.
- Notify the Pensions Service that your loved one has died. This can be done via the Tell Us Once service that notifies all government organisations, or by calling the Pensions Service helpline on 0800 731 0469.
- Assess whether you can claim your loved one’s pension. This can only be done by a spouse or civil partner. You can contact Gov’s Pension Service to check what you can claim (you may be able to claim extra benefits if you meet the criteria): https://www.gov.uk/contact-pension-service
What you get/how you claim depends on whether you reached State Pension age before or after 6 April 2016.
If you reached State Pension age before 6 April 2016
- You’ll get any State Pension based on your husband, wife or civil partner’s National Insurance contribution when you claim your own pension.
- You will not get it if you remarry or form a new civil partnership before you reach State Pension age.
If you reached State Pension age on or after 6 April 2016
Personal or workplace pensions
Accessing a Workplace Pension should be done within the first 12 months since your loved one’s death.
- Check through their paperwork to see if they had a workplace pension scheme
- Contact the pension provider to find out how much they had and what to do next
- Find out if the pension is either a Defined Contribution pension or a Defined Benefit pension. If you are unsure what type of pension they had, you can contact their employer to ask. Read more about how to do this here [link to other article]
Defined Contribution pensions
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.
If your loved one died before age 75:
- Beneficiaries won’t pay any tax if the money is claimed and transferred within two years.
- If your loved one received income from a single life annuity, in most cases this will stop. The only exception is if there was a ‘guaranteed period’ attached to the annuity. If there was, the annuity will continue to be paid tax-free until the end of the guarantee period, which is usually five or 10 years.
- If it was a joint life annuity (i.e. with a spouse or civil partner), income will continue to be paid to the survivor tax-free until they die. However this is usually at a reduced rate of half the amount.
- Any money taken out of the pension scheme before your loved one died, or any investments bought with any cash from the pension scheme, will count as part of the deceased’s estate and thus may be subject to Inheritance Tax.
If your loved one died after age 75:
- If the person received income from a single life annuity, this will stop unless there was a ‘guaranteed period’. If this applies, the income will be paid to the beneficiaries until the end of the guaranteed period. Income tax will be deductible from these payments.
- If it was a joint annuity, it will continue to be paid to the surviving spouse or civil partner, but income tax will apply.
- If any money was taken as a lump sum, as an income from a flexi-access drawdown scheme, or from any untouched pension pot, it will be added to any other income the beneficiary receives, and taxed in the normal way.
Defined benefit pensions
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:
- The majority of schemes will pay out a lump sum, often between two and four times of the deceased’s salary.
- If your loved one was under age 75 at their time of death, this payment is tax-free.
If your loved one had retired:
- A reduced pension will often continue to be paid to a spouse, civil partner or other dependent until they die.
- You can check this with the pension scheme or provider.
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.
You will need:
- The original will (if you have one)
- The original death certificate or an interim death certificate from the coroner
- A completed estimation and report of the value of the estate from HMRC, as completed in Step 1
- Depending on the value of the estate, a notice from HMRC saying that you’ve either paid Inheritance Tax or have no tax to pay, as completed in Step 2 or 3 (this can be corrected if necessary after the probate/ letter of administration application is complete).
Things to note:
The application fee is £215 if the value of the estate is £5,000 or over. There is no application fee if the estate is under £5,000. The application fee is lower (£155) where a solicitor makes the application.
Extra copies of the grant of probate or letter of administration cost £1.50 each. It is worth getting a few copies – we would recommend one for each account you still have to close, so you are able to send them to different organisations at the same time. This should help you to complete the process faster.
How to apply for probate:
- Once you have gathered all the documents from the list above, you need to complete the PA1P form and check whether you are eligible to apply for a grant of probate online
- If you are not eligible, you will need to submit the forms via post
How to apply for letter of administration:
- Once you have gathered all the documents from the list above, you need to complete the PA1A form and check whether you are eligible to apply for letter of administration online
- If you are not eligible, you will need to submit the forms via post
- Probate/ letter of administration usually takes around 8 weeks to be granted, but might take longer at the moment due to coronavirus
- If you have already contacted financial organisations to inform them of your loved one’s death, the accounts should be frozen to stop payments going in or out. You can now go back to these providers to inform them that you have a grant of probate to act on the behalf of your loved one
- Once you are able to access your loved one’s accounts, you can make an accurate assessment of the value of their estate and can correct any under or overpayments of Inheritance Tax with HMRC
- If you are doing this without a solicitor, you can find further information on the Government website
- Depending upon the financial situation of your loved one, you can now pay off any debts from the estate and distribute their assets according to their will (if there is one)
- If the estate is complex, or if there are multiple beneficiaries, it would be sensible to keep detailed records or accounts showing the assets of the estate, all payments in and out, and the ultimate distributions to the beneficiaries
What is Inheritance Tax?
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.
What is the threshold for paying Inheritance 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.
Typically, no Inheritance Tax is due if:
- The value of the estate (taking into account all of the issues above) is below £325,000 – this is known as the Nil Rate Band (NRB)
- Everything above the threshold is left to a spouse or civil partner, or
- Everything above the threshold is left to an exempt beneficiary such as a charity
You are obliged to file a report with HMRC even if there is no tax to pay. You can do this here: gov.uk
If you don’t need to pay Inheritance Tax, skip to Step 3: Applying for Probate or Letter of Administration
Where do you get the money to pay?
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.
How to pay:
- Value your loved one’s estate (Step 1)
- Decide whether it is likely that you will need to pay any Inheritance Tax based on the information in Step 2
- Report the estimated value of the estate to HMRC (even if you will not need to pay Inheritance Tax)
- If you think you need to pay Inheritance Tax, apply for a reference number. This needs to happen at least three weeks before you make a payment.
Feeling a bit stuck?
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.
Next Step: Applying for Probate or Letter of Administration