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Tax deducted on special lump sum death benefit

How should tax deducted at source on a special lump sum death benefit be dealt with

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Part of the estate has been left in trust and the remainder has been left to the widow. A lump sum death benefit of £117,000 has been paid to the deceased's estate net of 45% tax.  The widow has been led to believe that some or all of the tax will be repayable.  Her financial advisor thinks that the amount is treated as though it were trust income paid out net of tax at 45%.  It seems then that the money will be treated as part of her income and any tax overpaid will be reclaimable. 


1.Does anyone know if this is correct?!


2.If it is, do you know where the income should be entered on the tax return?


3.Is there anyway of getting part at least of the tax repaid before the end of the tax year in which the income is paid out to her?

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By tonycourt
12th Jun 2019 15:29

Potted history of recent changes to tax on pension lump sums

Since 6 April 2015 anyone who inherits a pension fund from a person who dies before they reach 75 is entitled to receive it tax free. That applies whether they take the money in a lump sum or as income. Those who inherit from someone who died at 75 or older will still be subject to a special tax equal to 45% (previously 55%) of the pension fund. However, a 55% tax charge can still apply to the pension fund in excess of the so-called lifetime allowance, which is currently set at £1.25 million.

On 6 April 2016 the 45% tax charge on lump sums was scrapped and income tax at the usual rates will apply instead. That is to say the lump sum counts as income and the tax on it calculated accordingly. It's quite likely therefore that a partial refund will result.

However, if the lump sum is paid to a trust that isn't a bare trust a 45% special lump sum death benefit charge applies. However (since 2016) relief for this type of charge is allowed when payments of the lump sum are made to beneficiaries.

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