SSAS pension death benefits

A common question among directors is what happens to the fund if a member of a SSAS dies. The answer is that family members and other nominated beneficiaries can access the funds held in a Small Self Administered Scheme. How those funds are taxed depends primarily on whether the member died before age 75 or at age 75 or over. A significant change to the Inheritance Tax position is also coming in April 2027, and anyone planning now should understand it from the outset.

It is worth noting that the rules in this area changed in April 2015. The old distinction between whether or not a member had started drawing their pension is no longer the pivotal point. Since 6 April 2015, the key question for income tax purposes has been the member's age at the date of death.

Who can receive the funds

The SSAS trustees have discretion over who receives death benefits. Where the member has completed a written nomination, sometimes called an expression of wishes, the trustees will normally follow it, although the nomination is not legally binding. A member can nominate a wide range of people — a spouse, civil partner, children, grandchildren, or someone unrelated — and can also nominate a charity.

A continuing pension, rather than a lump sum, can be paid to a dependant, a nominee named by the member, or a successor named by a beneficiary. A dependant may be a spouse or civil partner, a child aged under 23, anyone who was financially dependent on the member, or anyone dependent on the member because of physical or mental impairment.

Income tax: if the member dies before age 75

Where the member dies before age 75, death benefits can generally be paid free of income tax, provided the funds are paid out or designated to the beneficiary within two years of the scheme administrator becoming aware of the death.

A lump sum paid in these circumstances is tested against the member's available Lump Sum and Death Benefit Allowance, currently set at £1,073,100. Any amount paid as a lump sum above the available allowance is taxed at the beneficiary's marginal rate of income tax. Funds left invested and taken as beneficiary drawdown, or used to provide a beneficiary's pension, are not tested against this allowance, and income from them can be drawn free of income tax.

Income tax: if the member dies at age 75 or over

Where the member dies at age 75 or over, there is no test against the Lump Sum and Death Benefit Allowance. Instead, whatever the beneficiary receives — whether as a lump sum, as beneficiary drawdown, or as an annuity — is taxed at the beneficiary's own marginal rate of income tax as it is drawn.

Passing funds down the generations

If a beneficiary does not withdraw the whole of the inherited fund before their own death, the remaining funds can pass again to a beneficiary they have nominated. There is no limit on the number of successors, so a fund can potentially cascade across several generations as long as it is not fully withdrawn. Each time the fund passes on, the income tax position is set by the age at death of the most recent holder: free of income tax where they died before 75, and taxable at the next beneficiary's marginal rate where they died at 75 or over.

Inheritance Tax: the position from April 2027

This is the most important change for anyone planning now, and it is best understood before a scheme is established.

Until 5 April 2027, unused pension funds, including a SSAS, generally sit outside the member's estate for Inheritance Tax. From 6 April 2027, this is changing. Under legislation progressing through Parliament, most unused pension funds and pension death benefits will be brought into the member's estate for Inheritance Tax. The long-standing treatment of pensions as outside the estate is, in effect, coming to an end.

In practice this means that, for deaths on or after 6 April 2027, the value of an unused SSAS fund will usually be added to the rest of the estate and may be subject to Inheritance Tax. Where the member is aged 75 or over at death, the beneficiary may also pay income tax on the funds as they are drawn, as set out above. Funds passing to a surviving spouse or civil partner are expected to remain exempt, mirroring the existing spousal exemption, and gifts to charity continue to be relieved.

Because the detailed rules are still being finalised, the precise mechanics may yet be adjusted. The direction, however, is settled: pensions will no longer be a route to passing wealth outside the estate. Anyone establishing or holding a SSAS should plan on that basis rather than the outgoing position.

So is a SSAS still worthwhile?

For many directors, yes — but for reasons that go well beyond Inheritance Tax. A SSAS remains a flexible, member-controlled occupational pension that can hold commercial property, lend to the sponsoring employer, and bring several family members into a single scheme with a shared, long-term structure. The income tax treatment of death benefits described above continues to apply, and the ability to pass funds across generations through nominated beneficiaries and successors remains in place.

What changes from April 2027 is the Inheritance Tax position, not the underlying usefulness of the scheme. The value of a SSAS in a legacy context shifts from being a way to hold funds outside the estate towards being a structure within which considered decisions can be made — about drawdown, about how and when funds pass to the next generation, and about how the pension sits alongside the wider estate. Understanding the change early, and planning around it, is exactly the kind of clarity a SSAS is well placed to support.

The Lifetime Allowance

The Lifetime Allowance, which was a limit on the total value of pension benefits an individual could build up, was fully abolished from 6 April 2024. It has been replaced by two allowances: the Lump Sum Allowance, set at £268,275, which limits the tax-free cash that can be taken during a member's lifetime; and the Lump Sum and Death Benefit Allowance, set at £1,073,100, relevant to tax-free lump sum death benefits where the member dies before age 75. These figures may differ for individuals who hold transitional protection.

This page is intended to help directors and business owners understand how SSAS death benefits work in principle. The rules are detailed, depend on individual circumstances, and the Inheritance Tax changes coming in April 2027 are still being finalised. The tax treatment described is based on current understanding of UK legislation and HMRC practice. TLPI is not authorised by the FCA and does not provide financial advice.