What happens to my SIPP when I die?
Find out what happens to a SIPP after death, including rules around inheritance tax.
When financially planning for your future, deciding where or who your money goes to can be a crucial step. When it comes to your SIPP there’s a few things you might want to consider when you’re making your arrangements.
Are SIPPs subject to inheritance tax?
SIPP savings are normally free from inheritance tax when passed on to a beneficiary. However, for this to apply, the trustees must always choose who receives the benefits on your death, guided by your nomination (this is known as “exercising discretion”). That’s why it’s important to make and update your nominations so that trustees can easily decide who should receive your pension.
You can find out more about inheritance tax on gov.uk.
Who can I nominate as a beneficiary for my SIPP?
You can add anyone as a beneficiary, whether it be a friend, partner, or a registered charity. You can usually also change these at any time if you want to.
Your pension provider isn’t legally obliged to pay out to the person you’ve named, but it will be taken into consideration. If you name a minor as a beneficiary, it’s likely that your pension provider would have to sign the money over to their legal guardian until they turned 18.
Although your pension may not be part of your estate you can mention it in your will to make it clear what your wishes are.
| Age | Income tax treatment |
|---|---|
| Death before age 75 | Lump sum death benefits are tax-free if a beneficiary is designated and paid within two years of the death notification. If the beneficiary chooses to take a drawdown instead of a lump sum, the instruction to draw down must be received within two years of the death notification. If no beneficiary is designated within this period, the amount will be subject to tax. |
| Death after age 75 | After age 75, payments to a trust are usually taxed at 45%. However, if the funds are paid to a charity and there are no surviving dependants, the payment is tax-free. |
Are any taxes payable if a SIPP pension pot is paid to beneficiaries?
Depending on your lump sum and death benefit allowance (LSDBA), which refers to the maximum amount of tax-free lump sum death benefits you can pass to beneficiaries. You can pass your pension pot to your beneficiaries without them being liable for income tax.
Cash lump sums for deaths under 75 are subject to your available LSDBA, and anything above this allowance will be taxed as income at your beneficiary’s marginal income tax rate, meaning the rate of income tax that applies to the beneficiary is based on their total income.
How are death benefits from a SIPP paid?
How death benefits are paid usually depends on the provider and the options available under the SIPP, as well as how the beneficiary wants to receive payment. They can choose to have this paid either as a single lump sum or as regular payments.
What happens to the SIPP when the beneficiary dies?
This depends on what your beneficiary has done with the money. If your beneficiary puts the funds into beneficiary’s drawdown, and leaves funds in that drawdown fund on their death, the beneficiary can pass those on to a successor. And so on until the funds are exhausted.
The tax situation will depend on the beneficiary’s age on their death; so, if they were under 75, then their successor will pay no tax on any benefits.
Other tax allowances may apply depending on your income and how much money is paid into or taken out of your pension.
Tax benefits are subject to interpretation and may change in the future. They will depend on an individual’s circumstances.
Aviva SIPP
With our SIPP you can get started in minutes, all you need is your National Insurance number, and your bank or debit card details to set up payments.
There’s also a wide range of investment pathways you can choose from, from ready-made funds to shares and other exchange traded investments.
The value of pensions can go down as well as up, and you may get back less than has been paid in.
Related articles
