Question about LTA treatment after death?

RogerPensionGuy

If a person has say 2M in a DC pension scheme and is drawing down or maybe not drawing down and dies at say age 60 to 74.

If that person put down 4 beneficiaries say 25% each.

It is correct all the 4 people would just get 500K cash and they wouldn't pay any tax at all?

Although pot was over the LTA, the LTA overlimit charges would not be applied?

Any info or links to passing on pensions effectively most appreciated please.

Keep_pedalling

No it is not correct.

https://blog.jameshay.co.uk/dealing-with-a-lifetime-allowance-charge-on-death/

Albermarle

By passing on large pension pots , you can avoid them coming into any inheritance tax calculations , but you can not avoid LTA as well  by dying  .
You can't have your cake and eat it !

caveman8006

Note one crucial (and bizarre) wrinkle here: if you have not crystalized the Funds when you die before 75, they will be tested against your LTA at death and any excess subject to the penalty tax before it can be passed on as an inheritance. But, if you have already crystalized funds at death before 75, there is no further BCE test and therefore no tax due on any subsequent growth on the funds, even if it has taken them over your LTA. So, a 55 year-old who fully crystalizes a fund at 100% of the LTA of £1,073,100 and leaves £804,825 in drawdown which then grows at a nominal rate of 5%pa with no income being drawn could leave a pot worth £2,134,440 completely tax free if he died on the eve of his 75th birthday. But, the following day would have to pay a penalty LTA tax charge of up to 55% of the £1,330,615 of accumulated returns in excess of his LTA (ie £731,838 if taken as capital)...a very expensive day indeed!

Albermarle

caveman8006 said:

Note one crucial (and bizarre) wrinkle here: if you have not crystalized the Funds when you die before 75, they will be tested against your LTA at death and any excess subject to the penalty tax before it can be passed on as an inheritance. But, if you have already crystalized funds at death before 75, there is no further BCE test and therefore no tax due on any subsequent growth on the funds, even if it has taken them over your LTA. So, a 55 year-old who fully crystalizes a fund at 100% of the LTA of £1,073,100 and leaves £804,825 in drawdown which then grows at a nominal rate of 5%pa with no income being drawn could leave a pot worth £2,134,440 completely tax free if he died on the eve of his 75th birthday. But, the following day would have to pay a penalty LTA tax charge of up to 55% of the £1,330,615 of accumulated returns in excess of his LTA (ie £731,838 if taken as capital)...a very expensive day indeed!

Probably better that a 74 year old person in that position, does not tell any of their greedier relatives then !

zagfles

Are they drawing down or not? If the funds are crystallised there's no BCE. If they are uncrystallised there might be.

Some incorrect info above. There is no BCE on death. There are BCEs on designation of uncrystallised funds from a deceased person's pension if they died under 75 and funds are designated within 2 years. The LTA can be avoided, by waiting 2 years before designating, however this then means income tax is payable on the drawdown. This might be a better option if the beneficiary is a non taxpayer or even a basic rate taxpayer.

See https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm088100