Inheriting a £50,000 pension — small pot, big tax difference.
What happens when you inherit a £50,000 pension? See how the age-75 boundary affects tax on death benefits and what your beneficiary actually receives.
A £50,000 pension inherited before the member reaches 75 passes to beneficiaries completely tax-free — the full £50,000, with no income tax and no inheritance tax. But if the member dies at 75 or later, the pot becomes taxable as income when the beneficiary withdraws it. For a basic-rate taxpayer beneficiary, that means £10,000 lost to tax, leaving just £40,000. The age-75 cliff edge makes pension drawdown strategy critical even for modest pots. At £50,000, the pot sits well within the lump sum and death benefit allowance (currently £1,073,100), so the allowance is not a concern. The key planning point is ensuring an expression of wishes form is completed with your provider — without one, trustees decide who receives the benefits, which may not match your intentions.