SSAS Death Benefits

Published by Paul Higgs on

Family members and other dependants can make use of funds left in a Small Self Administered Scheme (SSAS) on the death of a member. The options available (and tax treatment) depend upon whether the member had already started drawing benefits themselves or not.

Options available on death before member has accessed the fund

The available funds can be used to provide a combination of lump sum benefits and pension income.

  • Lump sums are generally free of any tax - no inheritance tax1 , no income tax, no pension tax2 – and can be paid to anyone nominated in writing
  • Dependants’ pensions are subject to income tax on the recipient but must be paid to a dependant.  See later for how dependants can receive their pension.

If the deceased member had not accessed their fund but was 75 or over when they died, the benefits are paid out as though the available funds were a drawdown fund (see next section).


Options available on death from a drawdown fund

The available funds, whether the member was in capped drawdown or flexible drawdown, can be used to provide a combination of lump sum benefits and pension income. Lump sums are taxed at 55% deducted at source – and can be paid to anyone nominated in writing.

  • Dependants’ pensions are subject to income tax on the recipient but must be paid to a dependant. See later for how dependants can receive their pension
  • Tax-free payments can also be made to any registered charity nominated by the deceased member, but only where there are no surviving dependants.

Options available on death under a lifetime annuity contract

The death benefits would have been agreed at outset and reflected in the purchase cost. There is not usually a lump sum payment, though some allow this. An annuity may (or may not) include a minimum payment term during which the annuity income will continue and may (or may not) include provision for a dependant’s income to be paid following death of the annuitant.


Options available on death under scheme pension

The death benefits are normally agreed at outset and can include a lump sum, continuing income for the remainder of a set term and dependant’s pension.

The lump sum would taxed at 55% and limited to 20 times the original pension, less any pension paid out up to the date of death.

If death occurred during a minimum payment term agreed at outset, the trustees can continue to pay income as normal until expiration of the term and may be able to increase the income.

Remaining funds may be used to provide a dependant’s pension via annuity purchase, scheme pension or drawdown. See below for how dependants can receive their pension.


Dependant’s pensions

Only people who qualify as a dependant (see box) can receive a dependant’s pension. Dependants’ pensions are not tested against the deceased’s Lifetime Allowance but are taxed as income in the hands of the recipient e.g. spouse, children.

Broadly, dependants have the same income options as members i.e. a choice of capped drawdown, flexible drawdown if they qualify in their own right, scheme pension, lifetime annuity or a combination of these. These options are set out in a separate information sheet.


Who can qualify as a dependant?

  • Spouses and civil partners
  • Common law spouses
  • Children under age 23
  • Elder children, dependant due to physical or mental impairment3
  • Anyone financially dependent on the member
  • Anyone in a financial relationship with the member that is mutually dependant3
  • Anyone dependant on the member due to physical or mental impairment3

 

1Monies contributed within two years of the member’s death may be at risk of Inheritance Tax if paid in to reduce the value of the member’s Estate in anticipation of death.

2Lump sum payments are allocated against the deceased member’s available Lifetime Allowance. Exceptionally, if there is insufficient available Lifetime Allowance, the excess lump sum is taxed at 55% on the recipient.

3The trustees must be satisfied that the dependency existed at the date of death.