Tax on death benefit from SIPP

DUGR

Hello

I'm hoping someone can help, please. I am the beneficiary of a death benefit from my father's pension.

As he was over 75 I appreciate that I will be taxed at my marginal rate,  should I opt to take funds from the pot.

My question is, if I take the lump sum (to put into my mortgage) will this be added to my annual salary for tax purposes? If so this would take me over the limit for personal allowance and I'd end up paying even more tax (already will be taxed at 42% of benefit) which I'd obviously like to avoid.

If the answer to above is yes, then, although I am under 50, can I opt for a draw down income option instead which pays out the value of the pot, say over 3 years, to be more tax efficient? 

Thanks in advance and sorry if these are rookie questions! 

Marcon

DUGR said:

Hello

I'm hoping someone can help, please. I am the beneficiary of a death benefit from my father's pension.

As he was over 75 I appreciate that I will be taxed at my marginal rate,  should I opt to take funds from the pot.

My question is,1. if I take the lump sum (to put into my mortgage) will this be added to my annual salary for tax purposes? If so this would take me over the limit for personal allowance and I'd end up paying even more tax (already will be taxed at 42% of benefit) which I'd obviously like to avoid.

If the answer to above is yes, then, although I am under 50, 2. can I opt for a draw down income option instead which pays out the value of the pot, say over 3 years, to be more tax efficient? 

Thanks in advance and sorry if these are rookie questions! 

1. Yes.
2. Yes (more happily!). Have you checked with the SIPP provider that they will offer you this option - if not, you may need to transfer to one which will. Transferring direct from one SIPP to another won't attract tax, because you aren't actually withdrawing funds and removing them from their pensions tax shelter.

xylophone

https://www.gov.uk/tax-on-pension-death-benefits

https://techzone.abrdn.com/public/pensions/Tech-guide-DC-death

DUGR

Thanks very much to you both for your responses. The Abdn link is particularly useful and more comprehensive than anything else I could find. Much appreciated.