Taxation of Death Benefits

concorde

Dear All,

Following the recent death of my brother (aged 45), my sister-in-law has received death benefit options regarding one of his pension pots which include a tax free lump sum, an annuity and a drawdown.

With regard to the annuity and drawdown options, would these be considered as income and subject to income tax?

Many Thanks in advance.

xylophone

See (noting carefully distinction between taxation of  inherited DC pension   and taxation of Scheme Dependants' pension) 

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

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

Albermarle

concorde said:

Dear All,

Following the recent death of my brother (aged 45), my sister-in-law has received death benefit options regarding one of his pension pots which include a tax free lump sum, an annuity and a drawdown.

With regard to the annuity and drawdown options, would these be considered as income and subject to income tax?

Many Thanks in advance.

Apart from tax , answered in the links in the previous post ( there will not be any ), your SIL needs to think carefully about what is the best option. If it is a large pension pot then maybe some professional advice would be a good idea. 
The tax free lump sum may look attractive, but she will need to have plans about what to do with it, and not just take it out and leave it in a bank account .
An annuity will provide a guaranteed income as long as she lives. However due to her young age and the need to probably have it inflation linked in some way, then even a largish sum will only provide a modest income.
Drawdown would bring some flexibility as the amount withdrawn each year could be varied, even not withdrawing at all until later . However the pot will remain invested and some contact with the provider will be needed from time to time, for withdrawals anyway.

concorde

Thank you @xylophone and @Albermarle. I'll look into the links you kindly provided above and will encourage her to seek advice regarding the options available.