Chapter PTM074000

Published date27 March 2015
Record NumberPTM074000
Glossary PTM000001

Paying a life cover lump sum
Conditions for paying a life cover lump sum
When and to whom a life cover lump sum can be paid
A life cover lump sum and the lifetime allowance
How a life cover lump sum is taxed

Paying a life cover lump sum

Before 6 April 2006 some pension schemes paid small lump sums known as funeral expenses or funeral grants. A life cover lump sum is a ‘transitional’ payment. This lump sum is payable only following the death of a member aged 75 or older who had the right to such a payment before 6 April 2006.

Conditions for paying a life cover lump sum

Section 168(1) and paragraph 21A Schedule 29 Finance Act 2004

Regulation 6 The Taxation of Pension Schemes (Transitional Provisions) Order 2006 - SI 2006/572

A lump sum is a life cover lump sum if all the following conditions are met:

  • the scheme making the payment was approved under Chapter 1 Part 14 ICTA 1988 immediately before 6 April 2006,
  • the payment would not have prejudiced the scheme’s approval if it had been made on 6 April 2006,
  • on 10 December 2003 the rules of the scheme contained a provision that either gave the member the right to a life cover lump sum on that date or would have done so had the individual been a member of the scheme on that date,
  • the scheme rules relating to life cover lump sums have not changed since 10 December 2003,
  • the member had a right under the scheme to a life cover lump sum on 5 April 2006,
  • the member was either receiving benefits from the scheme before 6 April 2006 or was entitled to one or more life cover lump sums with a total value of...

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