Pensions tax: reporting non-taxable pension death payments using Real Time Information
Published 28 April 2021
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Who is likely to be affected
Pension scheme administrators and employers (pension payers) making certain types of non-taxable payments to beneficiaries following a member’s death.
General description of the measure
This measure introduces the requirement for pension payers to report to HMRC certain types of non-taxable payments, using Real Time Information (RTI).
Policy objective
To ensure individuals pay the correct Income Tax to HMRC and to ensure individuals receive their correct entitlement to certain means-tested benefits from the Department for Work and Pensions.
Background to the measure
The requirement to report payments of taxable pension death benefits and taxable lump sum death benefits to HMRC using RTI was introduced in 2015.
However, the tax treatment of some pension death payments changed in 2015. This legislative change will require pension payers to report certain non-taxable payments to HMRC using RTI. This change will provide HMRC with complete information about an individual’s pension payments and help ensure individuals do not overpay or underpay Income Tax. The RTI system can already accept non-taxable payment information.
The draft regulations have been shared with industry representatives for a short technical consultation.
Detailed proposal
Operative date
This measure will have effect from 6 April 2022.
Current law
The current pensions tax rules for registered pension schemes came into force on 6 April 2006 (A-day) and are set out in Part 4 of the Finance Act (FA) 2004.
The Finance (No2) Act 2015 and Finance Act 2016 made changes to the taxation of lump sum benefits paid on death.
Part 9 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) provides for a charge to Income Tax on pension income, including most pensions that are authorised pension payments and certain authorised lump sums payable from a registered pension scheme. Section 636 ITEPA provides for the types of lump sum death benefits and the circumstances in which they are taxable.
Section 683 paragraph 3 provides for the inclusion of taxable pension income in the definition of PAYE income. The Income Tax (Pay As You Earn) Regulations 2003 set out the operation of the PAYE system under which Income Tax is deducted at source from a payment of pension by a pension payer. The Income Tax (Pay As You Earn) (Amendment) Regulations 2012 provided for the operation of RTI.
Proposed revisions
This measure provides for legislation to be introduced to require pension payers to report certain non-taxable payments made to beneficiaries following a member’s death.
This measure will provide for pension payers to report this information to HMRC using RTI and will prescribe the information required from the pension payer.
The regulations will be published on 27 April 2021.
Summary of impacts
Exchequer impact (£m)
| 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 |
|---|---|---|---|---|---|
| – | Nil | Nil | Nil | Nil | Nil |
This measure is not expected to have an Exchequer impact.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure has no impact on individuals as it only affects pension payers.
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that there will be impacts on groups sharing protected characteristics.
All individuals will continue to be able to receive non-taxable payments from registered pension schemes following a member’s death, where the existing conditions for these payments are met.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on pension payers, as they will have to report non-taxable payments made to individuals, to HMRC.
One-off costs will include familiarisation with the change and could also include updating IT systems to reflect the change.
Continuing costs will include providing HMRC with information about non-taxable payments. Pension payers already need to record this information so this aspect will not be an additional cost.
This measure is not expected to impact on civil society organisations.
Customer experience is expected to stay broadly the same because pension payers already report other pension payments, made to individuals, to HMRC through RTI.
Operational impact (£m) (HMRC or other)
There are no operational impacts or additional costs for HMRC to administer this measure. This is because RTI can already receive non-taxable payment information; it will fall to business as usual for HMRC.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with the pension industry using existing channels, including the Pension Stakeholder Forum and the RTI Working Group.
Further advice
If you have any questions about this change, contact Karen Bishop on telephone: 03000 512336 or email: pensions.policy@hmrc.gov.uk.
Declaration
John Glen, Economic Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.