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HMRC internal manual

Pensions Tax Manual

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Death benefits: Types of pension: beneficiary's flexi-access drawdown from 6 April 2015: Where a dependant had designated funds in an arrangement into a dependant’s flexible drawdown pension fund before 6 April 2015

Glossary PTM000001
   

 

Automatic conversion to flexi-access drawdown fund
Taxation

Automatic conversion to flexi-access drawdown fund

Paragraphs 7, 8, 8A (1) and (2)(b) Schedule 28 Finance Act 2004

Where a dependant designated funds as available for the payment of drawdown pension before 6 April 2015 and qualified to take their pension as flexible drawdown (see PTM072330 onwards for more detail) then on 6 April 2015 the sums and assets so designated were dependant-designated funds (as are any sums or assets held for the purpose of the arrangement which arise directly or indirectly from such dependant-designated funds or from sums or assets which so arise or derive) provided at 5 April 2015 they had not been applied towards the provision of a dependant’s scheme pension.

As of 6 April 2015, the dependant’s flexible drawdown pension fund automatically converted into a dependant’s flexi-access drawdown fund, the funds ceased to be dependant-designated funds and become newly-designated funds.

Any designations of sums or assets for drawdown on or after 6 April 2015 under the arrangement holding this drawdown fund will go into the flexi-access drawdown fund.

From 6 April 2015 therefore, drawdown pension can continue to be taken from the arrangement in line with the guidance on flexi-access drawdown pensions at (PTM072430).

Taxation

Sections 579A and 579CZA(1)and(5) Income Tax (Earnings and Pensions) Act 2003

The dependant’s flexi-access pension is taxable as pension income where it is paid

  1. in respect of a deceased member who had reached age 75 at the date of their death, or
  2. in respect of a deceased member who had not reached age 75 at the date of their death and where all of the following apply:
  • the dependant’s flexi-access drawdown fund includes either sums or assets that on 5 April 2015 were held in a dependant’s flexible drawdown pension fund and automatically became newly-designated dependant funds on 6 April 2015 (see above) and/or sums or assets deriving (directly or indirectly) from the flexible drawdown fund’s sums or assets,
  • the dependant had received a payment of dependant’s flexible drawdown pension from the dependant’s drawdown pension fund before 6 April 2015, and
  • any of the sums and assets in the dependant’s drawdown pension fund at the time of that pension payment to any extent make up or are represented by the flexi-access drawdown fund’s sums or assets.

In such a case, the dependant’s flexi-access drawdown pension is taxable as pension income on the recipient as pension income through PAYE.