Pensions death benefits paid to a charity

From 6 April 2027, unused pension funds will generally form part of a deceased member's estate for Inheritance Tax (IHT) purposes. However, death benefit payments made to a surviving spouse, civil partner, or qualifying charity remain exempt from IHT.

As a result, single individuals, widows, widowers, and surviving civil partners are increasingly reviewing charitable nominations for their unspent pension wealth.

Understanding the income tax position

While IHT exemptions apply to charitable payments, death benefits can also trigger an Income Tax exposure depending on the member's age at death:

• Death Under Age 75: Lump sums exceeding the member’s Lump Sum Death Benefit Allowance (LSDBA) are subject to Income Tax at the beneficiary's marginal rate.
• Death Aged 75 or Over: All lump sum death benefits or drawdown payments are generally subject to Income Tax at the recipient's marginal rate.

To avoid Income Tax on pension assets passing to a charity, the payment must qualify as a Charitable Lump Sum Death Benefit (CLSDB). A qualifying CLSDB is entirely free of Income Tax on the death of either the scheme member or a drawdown beneficiary (dependant, nominee, or successor).

Requirements for a Charitable Lump Sum Death Benefit (CLSDB)

A CLSDB is not classed as a relevant lump sum death benefit. Consequently, it does not count against the deceased member’s LSDBA, nor does it trigger a Special Lump Sum Death Benefit Charge (SLSDBC).

To qualify, specific statutory conditions must be satisfied depending on when the payment occurs:

• On the member's death
  The payment must be made from a money purchase arrangement (uncrystallised funds, drawdown, or flexi-access drawdown) to a charity nominated by the member. Crucially, the member must have no dependants at the time the payment is made.
• On a beneficiary's death
  The payment must be made on the death of a dependant, nominee, or successor from a money purchase arrangement to a charity nominated by the member or beneficiary. At the time of payment, the original (deceased) member must have had no dependants.

For the above purposes, ‘dependant’ means: 

• A spouse or civil partner; 
• A child of the member (including adopted child); or 
• Any other person who, in the opinion of the Pension Scheme Administrator, was dependent on the member or beneficiary due to physical or mental impairment, had financial dependence on the member or beneficiary or was in a financial relationship with the member which was one of mutual dependence. 

In general, children will only be dependants if they are aged under 23 or they were, at the date of the member’s death, dependent on the member due to physical or mental impairment. 

Failure to meet the CLSDB rules

If the CLSDB conditions are not satisfied (e.g. the deceased left a spouse who is automatically regarded as a dependant), no inheritance tax applies to the payment to the charity but income tax can apply: 

• If the member died aged under 75, the lump sum payment is tested against the member’s LSDBA and income tax (probably at 45%) applies to any excess; or 
• If the member died aged 75 or over, a SLSDBC (probably at 45%) applies to the whole payment. 

Who is this planning appropriate for?

Given that a surviving spouse is considered a dependant, the nomination of lump sum pension death benefits to a charity is probably most appropriate for single people without dependants or on the second death of a married couple (assuming the survivor does not remarry). 

Why not make charitable gifts from the estate rather than the pension scheme? 

Where the member dies aged 75 or over, the payment of pension death benefits to a charity can save both income tax and inheritance tax. On the other hand, a payment from the estate saves inheritance tax and can potentially reduce the inheritance tax rate on the rest of the chargeable estate to 36%. 

If pension death benefits are paid to, say, adult children, either immediately as a lump sum or designated to income drawdown, there is a risk of a double charge to both income tax and inheritance tax. 

Do all the pension benefits need to be paid to a charity for the CLSDB rules to apply? 

No, it is not necessary for all pension benefits to pass to the charity and, in many cases, people may wish to pass part of their pension benefits on death to a charity(ies) with the balance passing to other beneficiaries, such as children.

Navigating the 2027 inheritance tax changes alongside complex pension death benefit rules requires proactive, holistic estate planning. If you or your clients would like to review existing financial plans please contact our team.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. The information in the article is based on current laws and regulations which are subject to change as at future legislations. 

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available.

The information in this article is correct as at 18/09/2026.

The Financial Conduct Authority does not regulate tax advice, trusts or estate planning.