PTM073900 - Death benefits: lump sums: charity lump sum death benefit

Glossary PTM000001

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

Conditions for paying a charity lump sum death benefit

Paragraph 18 Schedule 29 Finance Act 2004

These are the payment conditions for lump sums paid in respect of someone who died on or after 6 April 2011. For guidance relating to payments made in respect of a member or beneficiary who died before 6 April 2011 see RPSM10105300 on the National Archives.

Broadly a charity lump sum death benefit is a lump sum paid to a charity if:

  • a member receiving a drawdown pension, or
  • a beneficiary getting a beneficiary’s drawdown pension

dies and there are no dependants of the member.

The payment conditions vary slightly depending on whether the payment is made following the death of a member or the death of a beneficiary (dependant, nominee or successor).

Payment following a member’s death of the member

A lump sum paid following the member’s death is a charity lump sum death benefit if:

  • it is paid from a money purchase arrangement (including a cash balance arrangement)
  • it is paid to a charity nominated by the member, and
  • at the time it is paid there are no dependants of the member.

The payment must come from the member’s remaining:

  • drawdown pension fund (see PTM062500)
  • flexi-access drawdown fund (see PTM062700), or
  • ‘relevant uncrystallised funds’.

Before 16 September 2016 for payments from ‘relevant uncrystallised funds’ to be a charity lump sum death benefit the member was required to be 75 or older when the died.

‘Relevant uncrystallised funds’ are funds held in a money purchase arrangement at the member’s death which have not been:

  • used to purchase a scheme pension, a lifetime annuity, dependants’ scheme pension, dependants’ annuity or nominees’ annuity, or
  • designated as available to pay drawdown pension.

Payment following a beneficiary’s death

A lump sum paid following the death of a beneficiary is a charity lump sum death benefit if:

  • it is paid on the death of a dependant, nominee or successor,
  • it is paid from a money purchase arrangement (including a cash balance arrangement)
  • at the time it is paid there are no dependants of the member, and
  • it is paid to a charity nominated by the member. If the member did not select a charity it is paid to a charity nominated by the deceased dependant, nominee or successor.

The payment must come from the funds remaining in the:

  • dependant’s drawdown pension fund or dependant’s flexi-access drawdown fund – following the death of the dependant
  • nominees’ flexi-access drawdown fund – following the death of the nominee
  • successors’ flexi-access drawdown fund – following the death of the successor.

Child dependants

Paragraph 15(2B) Schedule 28 Finance Act 2004

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 to include children who have reached age 23 on or after 16 September 2016. When considering whether or not 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 PTM071200.

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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. If the member has not nominated a charity, the lump sum must be paid 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. Onerequirement of this definition is that the charity is established for charitable purposes only.

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The maximum charity lump sum death benefit payable

The maximum that can be paid as a charity lump sum death benefit is the ‘permitted maximum’. The permitted maximum is the total of the sums and market value of the assets held under the representing the drawdown pension fund or flexi-access drawdown fund from which the lump sum is paid. The valuation is made at the point of the lump sum payment. So, any growth of those drawdown/flexi-access funds between the date of the member’s or beneficiary’s death and the date the lump sum is paid may be included in the payment.

If the amount of the lump sum is more than the ‘permitted maximum’ the excess amount is not a charity lump sum death benefit. 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. Its payment does not trigger a lifetime allowance test. It does not 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).