SSAS Death Benefits & the April 2027 IHT Change: What Directors Need to Know

This article explains how SSAS death benefits currently work, what is changing, and why the timing of planning decisions matters.

What is the current SSAS death benefit position before April 2027?

Under the current rules, the value of your SSAS pension sits outside your estate for Inheritance Tax purposes. This means that, unlike a property, savings account, or investment portfolio, your pension fund is not added to your estate when calculating IHT liability. With the standard IHT rate at 40% on estates above the nil-rate band (currently £325,000), this is a potentially significant difference for directors with substantial pension pots.

This treatment applies because a SSAS is a discretionary trust. The pension assets do not belong to you personally — they are held by the trustees on behalf of the beneficiaries. Because you do not own the assets, they are not part of your estate when you die.

What happens if a SSAS member dies before age 75?

If you die before reaching age 75, your SSAS benefits can generally be paid to your nominated beneficiaries free of Income Tax. The key rules are:

• Uncrystallised funds (pension you have not yet started drawing): The full fund value can be paid as a tax-free lump sum to nominated beneficiaries, or used to provide income (drawdown or annuity) for those beneficiaries — also free of Income Tax, under the current rules.
• Crystallised funds in drawdown (pension already being drawn): The remaining drawdown fund can be paid as a tax-free lump sum or passed to beneficiaries in drawdown — again, free of Income Tax for deaths before 75.
• Payments are subject to the Lump Sum and Death Benefit Allowance of £1,073,100 — the total amount that can be paid tax-free across all your pension arrangements.

What happens if a SSAS member dies after age 75?

If you die at or after age 75, the position is less generous. Any lump sums or income payments from the pension to beneficiaries are subject to Income Tax at the recipient's marginal rate. There is no tax-free treatment for funds paid after the member's 75th birthday.

This means a beneficiary receiving a £200,000 lump sum from a SSAS after the member's death at 76 would potentially pay Income Tax at their marginal rate on the full £200,000 — potentially 40% or 45% if they are a higher or additional rate taxpayer.

However, the IHT exemption still applies under current rules: even for deaths after 75, the pension is not added to the estate and is not subject to the 40% IHT charge. The beneficiary pays Income Tax when they receive the funds, but IHT does not apply to the pension itself.

Summary: Current Death Benefit Tax Position
Before 75: Pension funds outside the estate (no IHT); lump sums to beneficiaries free of Income Tax (within the LSDBA).
After 75: Pension funds outside the estate (no IHT); lump sums / income to beneficiaries taxed at beneficiary's marginal Income Tax rate.

What changes to SSAS death benefits from April 2027?

In the Autumn Budget 2024, the Chancellor announced that from 6 April 2027, unspent pension funds will be included within a deceased member's estate for Inheritance Tax purposes. This is a fundamental change to the treatment of pension wealth on death.

What this means in practice:

• From April 2027, the value of your SSAS on death will be added to the rest of your estate when calculating IHT
• If your total estate — including the pension — exceeds the relevant nil-rate bands, the excess will be subject to IHT at 40%
• The existing Income Tax treatment on receipt by beneficiaries (i.e., no Income Tax before 75; Income Tax after 75) is expected to continue alongside the new IHT charge
• The risk of double taxation — IHT on the pension estate and Income Tax when beneficiaries draw the funds — is real and is generating significant planning activity ahead of the April 2027 deadline

Why This Makes Planning Urgent: Directors with substantial SSAS funds who were relying on the pension's IHT exemption as part of their estate planning need to review that planning now. Strategies that made sense before April 2027 may no longer be optimal after it. The window to act under the current rules is limited.

Lump Sum vs Income Options for Beneficiaries

When a SSAS member dies, the trustees (with input from any remaining member-trustees and expression of wish documents) decide how to pay the death benefits. The main options are:

Lump sum payment

The simplest option — the pension fund is paid out as a cash lump sum to the nominated beneficiary or beneficiaries. Under current rules, this is tax-free if the member died before 75 (within the LSDBA). After 75 (or from April 2027 under the new IHT rules), it will be subject to Income Tax and potentially IHT.

Inherited drawdown

A beneficiary can take the inherited pension into their own drawdown arrangement rather than taking a lump sum. This keeps the funds invested and allows the beneficiary to draw income at their own pace — potentially spreading the Income Tax impact over multiple years. This can be a tax-efficient option for beneficiaries who are higher-rate taxpayers in the year of death but expect to be lower-rate payers in later years.

Dependant's pension / annuity

Surviving dependants (typically a spouse, civil partner, or financially dependent child) can use the death benefits to purchase a dependant's annuity — a regular income for life. This provides certainty but lacks flexibility.

Expression of Wish Forms

A SSAS trustee has discretion over who receives the death benefits — this is a fundamental feature of the trust structure. However, every member should complete an expression of wish (sometimes called a nomination of beneficiaries) form, stating who they would like the trustees to consider when distributing death benefits.

The trustees are not legally bound to follow the expression of wish, but they will take it into account. The discretionary nature of this is intentional: it means the pension funds are not treated as part of the member's estate (a key reason for the historical IHT exemption).

Keep your expression of wish forms up to date. Major life changes — marriage, divorce, birth of children, death of a nominated beneficiary — all warrant a review. An outdated or missing expression of wish can create uncertainty and delay at an already difficult time for families.

Multi-Member SSAS and Death Benefits

In a SSAS with multiple members, each member has their own portion of the fund. When one member dies, the remaining trustees handle that member's death benefits in accordance with the scheme rules and their expression of wish. The other members' portions are unaffected and continue as normal.

It is important to ensure the scheme deed and member records are kept accurately so that each member's portion of the fund is clearly identifiable and separable on death.

Current vs Post-April 2027: Summary Table

The April 2027 change is significant and complex. The interaction between IHT on the pension estate and Income Tax when beneficiaries receive funds is still being worked through by HMRC. Speak to your SSAS scheme administrator about how the April 2027 change affects your estate planning before making planning decisions.

Disclaimer: This article is for educational purposes only and does not constitute financial advice. SSAS pensions are corporate pension schemes registered with HMRC and overseen by The Pensions Regulator (TPR), and do not require FCA regulation. Tax rules are subject to change and depend on individual circumstances. The April 2027 IHT change was announced in the Autumn Budget 2024 and details were subject to consultation at the time of writing.