If you have a SIPP (Self-Invested Personal Pension), or you’re thinking about opening one, you may be wondering what happens to your SIPP when you die. After all, you could pass away before spending all your retirement savings. Below, we’re going to look at what happens to a SIPP upon death. Here’s everything you need to know.
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What Happens To A SIPP On Death?
When you die, your SIPP can be passed on to beneficiaries of your choice. Your beneficiaries can normally choose to take the savings as a lump sum, draw an income from the SIPP, take ad hoc lump sum payments, or leave the SIPP invested and defer drawing until a later date.
Who Can Inherit My SIPP?
You can nominate whoever you like to receive your SIPP savings upon your death. This could be your spouse, children, grandchildren, friends, colleagues, a trust, or even a charity. You don’t have to leave it all to just one person or entity; you can split it up any way you like.
It’s important to nominate your SIPP beneficiaries while you are still alive, however (you can do this via your SIPP provider by completing an ‘expression of wishes’ form). This will ensure that, when you pass away, your SIPP is transferred to your beneficiaries smoothly.
SIPP Taxation Upon Death
SIPP taxation upon death depends on the age at which you die.
If you die before the age of 75, your beneficiaries won’t have to pay any tax on your SIPP savings at all, no matter whether they take the money as a lump sum or draw an income.
However, if you die when 75 or older, any withdrawals from the SIPP will be taxed as their income. In other words, they will pay Income Tax on the SIPP proceeds.
Note that if you die before the age of 75 and your SIPP funds are not ‘designated’ (transferred) to your beneficiaries within two years of your death, your beneficiaries will be required to pay Income Tax whenever they withdraw money from the SIPP in the same way they would be if you had died aged 75 or older. This is another reason it’s important to nominate your SIPP beneficiaries while you are still alive.
If you nominate a trust as a beneficiary, proceeds will be paid as a lump sum, and the trust will pay 45% tax on them.
Does My SIPP Form Part Of My Estate For IHT Purposes?
One major benefit of saving and investing within a SIPP (or any other kind of pension account) is that the money is not viewed as part of your estate. This means that it is not subject to Inheritance Tax (IHT) when you die. This is one big advantage that SIPPs have over Stocks and Shares ISAs and General Investment Accounts (GIAs).
What Happens To Property In A SIPP Upon Death?
If you hold commercial property in your SIPP, your beneficiaries have several options. The property could be sold with the proceeds either reinvested or used to provide benefits. Or, the property could be retained and the rental income used to provide benefits to the beneficiaries. Alternatively, the beneficiaries could buy the property from the SIPP and hold it personally, with the SIPP receiving cash in exchange.
What Happens When A SIPP Beneficiary Dies?
If a SIPP beneficiary dies, your SIPP can be passed down to their beneficiaries in the same way that you passed it down to them. Your beneficiary simply needs to nominate their own beneficiary via an ‘expression of wishes’ form. This can happen from beneficiary to beneficiary until all the savings are gone.
If your beneficiary dies before the age of 75, their beneficiaries will be able to access the savings tax-free. However, if your beneficiary dies after the age of 75, their beneficiaries will have to pay Income Tax on the proceeds.
Based in London, Edward is a distinguished investment writer with an extensive client portfolio comprising a diverse array of prominent financial services firms across the globe. With over 15 years of hands-on experience in private wealth management and institutional asset management, both in the UK and Australia, he possesses a profound understanding of the finance industry.
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