Taxation of superannuation death benefits paid to estate

What is the tax benefit of a lump sum superannuation? Can superannuation death benefits be paid? Is lump sum death benefit taxable?

A lump sum death benefit can be paid to a tax dependant tax-free regardless of whether the death benefit contains any taxable component. In all cases where a lump sum death benefit is paid , whether or not the payment is chargeable to Inheritance Tax , the taxpayer or agent should have completed a form IHT409.

HM Revenue and Customs (HMRC) will send you a bill, after they’re told about the payment by the person dealing with the estate of the person who died. Accordingly, the trustee of the Alfred Superannuation Fund exercises its discretion and pays Alfred’s death benefits to Alfred’s estate pursuant to the governing rules of the fund. While superannuation law sets out who a death benefit may be paid to, taxation law sets out how the benefits will be taxed. Part explains how superannuation amounts are taxed and the opportunities available to direct death benefits to those beneficiaries who can continue to take advantage of concessional taxation following a member’s death.

When superannuation death benefits are paid to the legal personal representative (that is, the executor or administrator of the estate ), the trustee of the fund does not deduct any tax but provides the legal personal representative with a statement setting out the taxable components of the payment. It is the responsibility of the legal personal. A lump sum superannuation death benefit paid to someone who is not a death benefit dependent for tax purposes is subject to or tax.

In contrast, lump-sum death benefits paid to someone who does qualify as a death benefit dependent for tax purposes are entirely tax-free. Where the lump sum death benefit is paid to a non-individual (eg a trustee, except a bare trustee, or a personal representative) the SLSDB tax charge of still applies. Paying super death benefits – direct to beneficiaries or the estate?

Super regulations govern the form in which a death benefit can be paid – that is, either lump sum. Death benefits can be subject to inheritance tax if the estate has a legal right to the payment, there is a lifetime transfer of the death benefit or the member can dictate to whom any benefit is paid. Usually pensions are exempt from IHT charges which would apply to settled property.

Tax law contains a ‘look through’ provision in respect of death benefits paid to an estate (ie, to a legal personal representative being the executor of a will or the administrator in the case of intestacy). Tax implications of lump sum death benefits Unfortunately, many people are unaware the death benefit payments from a superannuation fund can be subject to tax, depending on who receives the payment. For deaths age and over the income is liable for tax at the recipient’s marginal rate of tax. Tax on superannuation death benefits (known as death benefits tax ) can be complex.

So in what circumstances might you use each one? As ever, it’s down to the objectives of the member and what’s important to them. If you pass away before the age of 7 personal pension death benefits are paid out tax-free.

When the pension holder dies after the age of 7 the benefits will usually be taxed at the recipient’s marginal rate of income tax. There are often no inheritance tax implications, although there are some exceptions to this rule. If there is a taxable component paid to a non-dependant, the entire component is taxed.

Where a death benefit is paid to a legal personal representative as executor of an estate , no tax is withheld by the trustee of the super. This usually only occurs if the fund trustee uses its discretion to do so, or if you have made a valid binding death benefit nomination (BDBN) requesting the fund to distribute your super death benefit in this manner. A superannuation death benefit is a payment that a super fund makes to a dependant beneficiary or to the trustee of a deceased estate after the member has died. The short answer is. If the pension scheme member dies before age 7 then lump sum or income payments can be made to anyone completely tax-free, provided that the death benefits are paid within years of the member’s death.

Inclusion of death benefits was a choice the annuitant made at the point the annuity was purchase and came at a cost. That cost will be reflected in the amount of annuity paid to the annuitant – the more death benefits that are include the lower the starting annuity will be. If you die before you retire your pension will pay out a lump sum worth 2-times your salary. If you’re younger than when you die, this payment will be tax-free for your beneficiaries.

You don’t need to pay tax on the tax -free component of the death benefit , regardless of how you receive it, your age and the age of the deceased when they died.