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.

The Current Position (Pre-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.

Death Before Age 75: Current Rules

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.

Death After Age 75: Current Rules

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.

The April 2027 Change: Pensions Into the IHT Net

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. Professional advice specific to your circumstances is strongly recommended 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.

Important: Carry forward calculations can be complex, particularly if you have changed employers, held multiple pension schemes, or have any defined benefit pension entitlement. It is worth confirming carry forward calculations with a qualified adviser before making a large single-year contribution.

What Happens if You Exceed the Annual Allowance

If your total pension contributions — employer and personal, across all schemes — exceed your available Annual Allowance in a tax year, the excess is subject to an Annual Allowance charge. This is a tax charge levied on the individual member (not the employer), charged at the individual's marginal Income Tax rate.

For example, if a director has £60,000 of available Annual Allowance and the company contributes £80,000 in a single year, the £20,000 excess would be added to the individual's taxable income and taxed at their marginal rate — typically 40% or 45% for most directors in this position.

The charge effectively claws back the tax relief on the excess. This does not mean the excess contribution is returned; the money stays in the pension. But the tax advantage on that portion is neutralised.

HMRC allows a mechanism called "scheme pays" for large Annual Allowance charges — if the charge is at least £2,000 and the pension scheme is responsible for the excess, the scheme can pay the charge on your behalf in exchange for a reduction in your eventual pension benefits. For a SSAS, voluntary scheme pays is also available but requires trustee agreement.

The Money Purchase Annual Allowance (MPAA): £10,000

If you have already accessed your SSAS or another money purchase pension flexibly — for example, by taking income through flexi-access drawdown — the standard £60,000 Annual Allowance no longer applies to your money purchase pension contributions. Instead, you are subject to the Money Purchase Annual Allowance (MPAA), which is currently £10,000 per year.

The MPAA is designed to prevent individuals from recycling pension funds — taking money out in drawdown and immediately reinvesting it as a tax-relieved contribution. Once triggered, the MPAA applies permanently.

Actions that trigger the MPAA include:

• Taking income through flexi-access drawdown from any money purchase pension
• Receiving an uncrystallised funds pension lump sum (UFPLS)
• Purchasing a flexible (investment-linked) annuity where income can vary downwards

Taking your tax-free cash lump sum alone (without also taking income from drawdown) does not trigger the MPAA, provided the rest of the uncrystallised fund remains in drawdown but no drawdown income has been taken.

Critical Point: If you are still contributing to your SSAS — particularly through large employer contributions — triggering the MPAA could have serious consequences, limiting your annual contributions to just £10,000. Plan carefully before accessing pension funds flexibly if you intend to continue making significant contributions.

The Lifetime Allowance: Abolished from April 2024

Until April 2023, there was a limit on the total amount of pension savings you could build up in your lifetime before facing a tax charge — the Lifetime Allowance (LTA). In its final form, the LTA was £1,073,100.

The LTA has now been abolished. From 6 April 2024, there is no lifetime limit on the amount of pension wealth you can accumulate. This is a significant change for higher earners who were previously managing their SSAS contributions carefully to avoid the LTA charge.

However, the abolition of the LTA does not mean there are no limits on pension benefits. Instead, HMRC has introduced two new lump sum allowances:

For most directors, the practical effect is that the 25% tax-free cash entitlement is now capped at £268,275 — regardless of total fund size. Funds above this threshold that are drawn as lump sums will be subject to Income Tax at the individual's marginal rate. Pension income taken through drawdown remains subject to Income Tax in the usual way.

Contribution Rules in Practice: A Summary for Directors

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 information in this article is based on our understanding of HMRC rules for the 2025/26 tax year.