Policy paper

Income Tax: removing the pensions tax two-year rule

This tax information and impact note is about removing the two-year rule for tax-free pension and lump sum death benefits.

• From: HM Revenue & Customs
• Published: 28 October 2026

Documents

Tax treatment of pension and lump sum death benefits under the two-year rule

HTML

Details

Tax-free lump sum death benefits will no longer be taxed just because they are not paid within 2 years of the pension scheme administrator first learning of the member’s death.

The same 2-year tax rule will also be removed for:

• annuity payments from a drawdown fund
• money put into drawdown in pension schemes outside the UK following a person’s death