Pension death payments no longer taxed solely after two years under UK change
Lump-sum pension payments made after a death will no longer become taxable solely because more than two years has passed, under a change set out in Wednesday's Budget. The pensions minister, Torsten Bell, confirmed the rule change in a letter to Sir Geoffrey Clifton-Brown, chairman of the Public Accounts Committee. BBC News
Under the previous rules, certain lump-sum payments had to be made within two years of the pension scheme being told of a death in order to stay tax-free. If the person died before the age of 75, the payment was tax-free only if it was made within two years of the scheme first becoming aware of the death, and only if its value was below the deceased's Lump Sum and Death Benefit Allowance, a limit on the amount that can be paid out tax-free. BBC News
The change followed cases in which families were caught by the deadline. Rob Wassell, 58, waited more than two years after his brother's death to receive a civil service pension lump sum, which was then taxed at 45%. BBC News
The Civil Service Pension scheme manages the pensions of 1.7 million public sector workers in the UK, and the Cabinet Office has overall responsibility for it. Capita took over administration of the scheme from MyCSP in December 2025. It said it had inherited a backlog of more than 86,000 cases. By February, the backlog had grown to 120,000 cases, despite a two-year transition period to prepare for the takeover. BBC News
As of 30 September, 1,643 outstanding bereavement or death-in-service cases in the civil service scheme were more than 100 days old. BBC News
Earlier in October, the government was warned that bereaved families could face "unconscionable" tax bills because of "chaos" in the civil service pension scheme. The Guardian
In its own published document on the change, the government said the measure is expected to support bereaved families by removing a risk of unfair tax outcomes after a bereavement. GOV.UK
