What Happens to a SIPP When I Die?

10/02/2020

“What happens to a SIPP when I die?” It’s a question that we often get asked and in short the rules in this instance are very flexible. It is important though that you complete an Expression of Wish form in your lifetime to nominate your beneficiaries to assist the administrator and Trustees of your pension when the time comes.

Can a SIPP be inherited?

Yes, it can be inherited and you have the freedom to nominate anyone as your beneficiary using the Expression of Wish form. You can even choose a number of different beneficiaries should you wish, each of whom can receive a percentage of the fund.

Examples of beneficiaries are:

  • Your spouse or life partner
  • Children or grandchildren
  • Someone from your wider family
  • A close friend, neighbour or colleague
  • A charity.

Whilst not a legally binding document, the Expression of Wish form provides the pension scheme administrators and Trustees with guidance. If you do not have this form in place, the Trustees will still pay out benefits and will usually look to pay to living dependents in the first instance.

You can update your Expression of Wishes form at any time if you wish to make changes to your nominated beneficiaries.

How will your SIPP be allocated to beneficiaries?

This depends on how old you are when you die.

If you die before age 75 (including if you die before retirement age), the beneficiaries will not pay any income tax on what is drawn from the pension that is passed to them. If you die after age 75, the beneficiaries will pay income tax on what they draw depending on what other income they have. In both instances the value of the SIPP is not included within the Estate, so will not affect any Inheritance Tax. The benefits from your SIPP must be paid out within two years of your death, otherwise payments will be charged at the recipient’s marginal rate of income tax.

The beneficiaries can choose to draw either a regular income, take ad hoc lump sum payments, a single lump sum, or they can leave the SIPP invested and defer drawing until a later date. The beneficiary does not have to be of pensionable age (over 55) in order to draw from their inherited pot of money.

If by the time of your death you have exceeded your lifetime allowance (LTA) – currently £1,073,100 – then additional tax charges may apply.

What if you don’t have any beneficiaries?

If you die without nominating beneficiaries, your SIPP provider will most likely seek to pay any remaining funds to living dependents. If you don’t have any dependents your SIPP administrators have the power to nominate any individual(s) or charity to receive your pension savings. For this reason, it is important to complete an Expression of Wishes form to ensure your pension is left in accordance with your wishes.

What if the beneficiary should die?

On inheriting your SIPP, the beneficiary is then able to make their own nomination for the fund that they now own. The rules around death before and after age 75 will then apply to them.

What about commercial property?

If you hold a commercial property in your SIPP there are a number of options available. The asset can be retained and the rental income used to provide benefits to the beneficiaries.  The property can be sold with the proceeds either reinvested or used to provide benefits. To retain ownership, the beneficiaries can even buy the property out of the SIPP and hold it personally should they wish, with the SIPP receiving cash in exchange.

Got a question? We’re all ears.

We are SIPP experts and are happy to answer any questions that you may have about your pension – no matter who your provider is. Call us for a free consultation.

James Priday

This article was written by James Priday

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