Answers · UK 2025/26

Is my pension taxed differently if I die before or after age 75?

If you die before age 75, your remaining pension pot can usually be paid to beneficiaries completely tax-free (whether as a lump sum or drawdown income), as long as it is paid within 2 years of death being notified. If you die at or after 75, beneficiaries pay Income Tax at their own marginal rate on withdrawals from the inherited pension, whether taken as a lump sum or income.

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The age-75 dividing line is one of the most significant factors affecting how much tax your beneficiaries will eventually pay on an inherited pension, making it an important consideration in retirement and estate planning. **Death before age 75 -- generally tax-free** If you die before your 75th birthday with an uncrystallised or drawdown pension pot remaining, your nominated beneficiaries can normally receive the pension completely free of Income Tax, whether they take it as a single lump sum or draw it down gradually as income over time -- provided the pension scheme administrator pays out (or the beneficiary is 'designated' to a drawdown arrangement) within 2 years of the scheme being notified of your death. If this 2-year window is missed, the tax-free treatment can be lost and the payment may become taxable instead. **Death at or after age 75 -- beneficiaries pay Income Tax** If you die on or after your 75th birthday, any pension benefits passed to beneficiaries are subject to Income Tax at the BENEFICIARY'S own marginal rate when they withdraw the money (whether as a lump sum or as drawdown income) -- it is added to their other income for the tax year of withdrawal and taxed accordingly, potentially pushing them into a higher tax band depending on how much they withdraw and when. **Worked example: death before 75** A pension holder dies at age 68 with a £400,000 drawdown pension pot, having nominated their adult child as beneficiary. Because death occurred before 75, and the pension scheme pays out within 2 years of notification, the child can withdraw the £400,000 completely free of Income Tax, whether taken as one lump sum or gradually over several years as 'beneficiary's drawdown' income. **Worked example: death after 75** A different pension holder dies at age 78 with a similar £400,000 pot, also nominating their adult child. Because death occurred after 75, every withdrawal the child makes from the inherited pension is added to their own income and taxed at their marginal rate. If the child is a higher rate taxpayer and withdraws £50,000 in a single year, a substantial portion of that withdrawal could be taxed at 40% (or even trigger additional rate tax on a large lump sum), whereas the same amount would have been entirely tax-free had the original pension holder died just a few years earlier, before turning 75. **Why beneficiaries should plan withdrawals carefully after age-75 deaths** Because post-75 inherited pension withdrawals are taxed as income in the year taken, beneficiaries have an incentive to spread withdrawals across multiple tax years (rather than taking a single huge lump sum) to avoid being pushed into higher tax bands unnecessarily -- similar in principle to how someone might manage their own pension drawdown to stay within a lower tax band, but applied to an inherited pot. **Inheritance Tax is a largely separate question** Note that most defined contribution pensions sit outside the estate for Inheritance Tax purposes regardless of the age-75 rule (though recent and upcoming reforms are changing this treatment for some pensions from April 2027 onwards, bringing unused pension funds into the IHT estate in many cases) -- the age-75 Income Tax rule described here is a separate, additional consideration on top of, not instead of, any Inheritance Tax treatment that may also apply.