That Death in Service benefit you take for granted could trigger a tax charge

Many employers provide valuable staff benefits. Pensions have taken centre stage recently, given the introduction of auto enrolment in 2012, but there are a number of employers who also provide a life cover benefit to their employees called ‘Death in Service’.

Although many are fortunate to receive cover from their employer, death in service should not become a substitute for your own personal protection and life cover, so it’s important to ensure you and your family have the right level of cover arranged separately.

Death in Service is usually provided alongside a pension scheme arrangement, which means that if you die while in employment, a lump sum will be paid to your family. As the cover is linked to the pension scheme, the value of the lump sum paid on death actually counts towards your total pension benefits, which many employees and employers are unaware of.

This has remained the case for a number of years, but has gained importance because in April the Pension Lifetime Allowance reduced again - to £1 million – and this means that there may be a greater number of people unwittingly caught out should they have a high level of earnings and/or substantial accrued pension benefits.

Should the overall value of your pension benefits plus the value of your death in service cover be greater than £1 million, upon death before retirement tax will be due on the excess.

We recently covered the pension lifetime allowance in our article: transitional protections explained so it is important to be aware of the potential impact that your death in service cover may have.

It is possible that death in service cover is not provided through a pension scheme; instead being set up via a group life assurance arrangement and if this is the case, then you won’t be caught out by the Lifetime Allowance limits.

If you are in doubt, or believe you could be affected, it may be beneficial to review your arrangements and check with your employer in order to establish exactly what benefits are in place, or if changes can be made.

Should you require any advice on this matter, please contact one of our Financial Planning Consultants at any of our office locations across the North of England and Scotland on 0808 144 5575 or email help@armstrongwatson.co.uk.

If you like this article and would like our FREE updates sent straight to your inbox then subscribe to our monthly newsletter

Subscribe

Get in touch

To find out more about how we can help you or your business, call us on 0808 144 5575 and speak to a member of our team. Alternatively use our contact form to send us a message or arrange a callback.

CALL 0808 144 5575

or

Contact Us

All content © 2015 Armstrong Watson. All Rights Reserved. Website by Simon Pighills.

Armstrong Watson LLP is a limited liability partnership registered in England and Wales, number OC415608. The registered office is 15 Victoria Place, Carlisle, CA1 1EW where a list of members is kept. Armstrong Watson Accountants, Business & Financial Advisers is a trading style of Armstrong Watson LLP. Armstrong Watson LLP is regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities.

Armstrong Watson Audit Limited is registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Registered as a limited company in England and Wales No. 8800970. Registered office: 15 Victoria Place, Carlisle, CA1 1EW

Armstrong Watson Financial Planning Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 542122. Registered as a limited company in England and Wales No. 7208672. Armstrong Watson Financial Planning & Wealth Management is a trading name of Armstrong Watson Financial Planning Limited. Registered Office: 15 Victoria Place, Carlisle, CA1 1EW