• No inheritance tax liability on lump sums paid from registered pension schemes if paid under discretionary provisions.
• Death benefits from uncrystallised rights on death before age 75 within the Lifetime Allowance will attract no inheritance tax liability or Lifetime Allowance charge. 
• Lump sum death benefits over the available Lifetime Allowance will be subject to a Lifetime Allowance charge of currently 55%.
• Lump sum death benefits from crystallised funds in capped or flexible income subject to 55% withholding tax charge. The same rate of tax charge will apply for lump sum benefits from uncrystallised funds where the client dies after age 75.

It may be some time since clients have reviewed the beneficiaries they would like to receive any lump sum death benefit from their registered pension scheme rights. It may now be a suitable time to review this position and, where necessary update their expression of wishes to the registered pension scheme administrator.

The changes may have greater impact for clients in capped income where the increase in the withholding tax charge from 35% to 55% applying to deaths from 6 April 2011 may create the need to review current planning.

It may be more tax efficient for clients using capped income to consider providing a spouse or dependant’s capped income benefit should they die. This will allow the spouse or dependant to continue taking income withdrawals from the remaining capital at rates of tax which are less than the 55% capital tax charge. It will also defer any capital tax charge until the death of the spouse or dependant in capped drawdown and will only apply to any remaining fund. In addition, payment of a lump sum death benefit will place the capital into the estate of the individual beneficiaries, potentially creating an inheritance tax liability that does not exist while the fund remains inside the registered pension scheme.

From April 2012 protected rights will no longer exist. Because of this change there will be greater flexibility for providing lump sum death benefits as there will no longer be a need to provide an income solution for these funds where there is a surviving spouse or financial dependant.

As part of any continuing review to discuss the impacts of new legislation the changes to the tax treatment of death benefits will be an added opportunity for advisers to review this planning.