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HMRC internal manual

Pensions Tax Manual

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HM Revenue & Customs
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Death benefits: lump sums: charity lump sum death benefit

Glossary PTM000001
   

 

Paying a charity lump sum death benefit
Conditions for paying a charity lump sum death benefit
To whom a charity lump sum death benefit can be paid
The maximum charity lump sum death benefit payable
A charity lump sum death benefit and the lifetime allowance
How a charity lump sum death benefit is taxed

Paying a charity lump sum death benefit

A lump sum may be paid to a charity on the death of a member or a beneficiary. This lump sum is called a charity lump sum death benefit.

Conditions for paying a charity lump sum death benefit

Paragraph 15(2B) Schedule 28 and paragraph 18 Schedule 29 Finance Act 2004

Death of the member

A lump sum is a charity lump sum death benefit if:

  • either:

    • there are no dependants of the member,
    • it is paid in respect of either the member’s drawdown pension fund or flexi-access drawdown pension fund (see PTM062500 and PTM062700 for more detail about these funds) at the date of the member’s death, and
    • it is paid to a charity nominated by the member;
  • or:

    • for payments before 16 September 2016 the member died having reached age 75 (for payments on or after that date there is no restriction on the age of the member),
    • there are no dependants of the member,
    • the member had relevant uncrystallised funds under a money purchase arrangement when they died, and
    • it is paid to a charity nominated by the member.

Relevant uncrystallised funds are sums and assets held in a money purchase arrangement for the member at the member’s death and which had not been used to provide the member or a dependant with either a scheme pension or annuity nor designated as available for the payment of drawdown pension.

Death of a beneficiary

A lump sum is a charity lump sum death benefit if the following conditions are met:

  • it is paid on the death of a beneficiary
  • there are no dependants of the member at the time of the payment
  • it is paid in respect of either:

    • a dependant’s drawdown pension fund or dependant’s flexi-access drawdown fund at the date of the dependant’s death in respect of an arrangement relating to the member, or
    • a nominee’s/ successor’s flexi-access drawdown fund at the date of their death in respect of an arrangement relating to them as a nominee/successor
  • it is paid to a charity nominated by the member or if the member made no nomination by the deceased beneficiary.

Child dependants

A charity lump sum death benefit can only be paid when there are no dependants of the member.  The meaning of dependant for this purpose does not have the extended meaning which includes children of the member who have reached age 23 on or after 16 September 2016.  When considering whether any children of the member are dependants, take into account only

  • the children who are aged under 23
  • children who are dependants because of their physical or mental impairment
  • the transitional provisions at PTM071000.

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To whom a charity lump sum death benefit can be paid

Paragraph 18 Schedule 29 Finance Act 2004

Paragraph 1 Schedule 6 Finance Act 2010

The lump sum must be paid to a charity nominated by the member or, if the member has not nominated a charity, to a charity nominated by the deceased beneficiary who held the drawdown pension fund or flexi-access drawdown fund from which the lump sum will be paid.

The scheme administrator cannot choose the charity receiving the payment.

For the purposes of the charity lump sum death benefit, a charity is one which meets the definition in paragraph 1 Schedule 6 Finance Act 2010, one of the requirement being that the charity is established for charitable purposes only.

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The maximum charity lump sum death benefit payable

If a lump sum meets the conditions for a charity lump sum death benefit but the amount of the lump sum exceeds the “permitted maximum” then the excess is not a charity lump sum death benefit.

The permitted maximum is the aggregate of the amount of the sums and the value immediately before the lump sum is paid of the assets held in the drawdown pension fund or flexi-access drawdown fund from which the lump sum is being paid. If the excess cannot be paid as some other type of authorised lump sum death benefit it will be an unauthorised member payment and taxed accordingly (see PTM131000).

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A charity lump sum death benefit and the lifetime allowance

A charity lump sum death benefit is not a benefit crystallisation event so its payment does not trigger a lifetime allowance test nor does it use up any of either the deceased member’s or deceased beneficiary’s lifetime allowance.

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How a charity lump sum death benefit is taxed

There is no tax charge on the scheme administrator of the pension scheme making the payment of a charity lump sum death benefit.

There is no tax charge on the charity receiving the payment so long as it is used for charitable purposes. If the charity does not use the payment for charitable purposes, the payment will not have been a charity lump sum death benefit. It will be treated as an unauthorised member payment (see PTM131000).