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Jonathan Watts-Lay, Director, WEALTH at work, a leading financial wellbeing and retirement specialist, comments;<\/strong>\u00a0\u201cDeath in service benefit is generally paid as a tax free lump sum, calculated as a multiple of the employee\u2019s salary. Employees can nominate who they would like to receive this lump sum in the event they die whilst employed at the company. It is usually\u00a0paid free of income tax and inheritance tax\u00a0to the employee\u2019s nominated beneficiaries.<\/p>\n However, most employers death in service arrangements are set up under pension legislation, meaning it can form part of the employee\u2019s lifetime allowance (LTA) when it is paid.\u00a0 In certain cases, this could lead to a 55% tax charge on some, or all, of the death in service benefit.<\/p>\n With the LTA now fixed at \u00a31.073m until April 2026 many members of workplace pensions may be nearer than they think to the LTA.\u00a0 Upon death before retirement, the death in service payment would be added to this value and any excess above the LTA would be taxed at an eye-watering 55%. \u00a0For example, a pension scheme valued at \u00a3800,000, and a death in service plan (through the employer\u2019s pension scheme) at 4 times salary on \u00a3100,000, the death in service payment of \u00a3400,000 would be added to the existing pension value of \u00a3800,000, giving a total of \u00a31,200,000.\u00a0 This employee is now over the LTA by \u00a3126,900 resulting in a tax charge of \u00a369,795 (@55%).<\/p>\n Some employers choose to offer an \u2018excepted group life policy\u2019 to employees impacted by the LTA.\u00a0 This would mean their death in service benefit would be paid outside pension legislation and would not incur an LTA charge.<\/p>\n","protected":false},"excerpt":{"rendered":" Jonathan Watts-Lay, Director, WEALTH at work, a leading financial wellbeing and retirement specialist, comments; \u201cDeath in service benefit is generally paid as a tax free lump sum, calculated as a multiple of the employee\u2019s salary. <\/p>\n","protected":false},"author":1,"featured_media":805,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"_links":{"self":[{"href":"https:\/\/www2.wealthatwork.co.uk\/lseg\/wp-json\/wp\/v2\/posts\/804"}],"collection":[{"href":"https:\/\/www2.wealthatwork.co.uk\/lseg\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www2.wealthatwork.co.uk\/lseg\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www2.wealthatwork.co.uk\/lseg\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www2.wealthatwork.co.uk\/lseg\/wp-json\/wp\/v2\/comments?post=804"}],"version-history":[{"count":3,"href":"https:\/\/www2.wealthatwork.co.uk\/lseg\/wp-json\/wp\/v2\/posts\/804\/revisions"}],"predecessor-version":[{"id":808,"href":"https:\/\/www2.wealthatwork.co.uk\/lseg\/wp-json\/wp\/v2\/posts\/804\/revisions\/808"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www2.wealthatwork.co.uk\/lseg\/wp-json\/wp\/v2\/media\/805"}],"wp:attachment":[{"href":"https:\/\/www2.wealthatwork.co.uk\/lseg\/wp-json\/wp\/v2\/media?parent=804"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www2.wealthatwork.co.uk\/lseg\/wp-json\/wp\/v2\/categories?post=804"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www2.wealthatwork.co.uk\/lseg\/wp-json\/wp\/v2\/tags?post=804"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}