UK pension death benefit tax change: what families in France should know

Family members receiving pension death benefits from some UK pensions will be spared tax charges caused by delays in pay-outs, in a measure announced in the UK’s new Autumn Budget.

The budget announced the removal of a two-year deadline that could previously trigger UK income tax on otherwise tax-free death benefits from certain British pensions, if administrators delayed payment.

Such benefits can include lump sums paid following a pension holder's death to a surviving spouse, partner, children or other nominated recipients.

This applies to payments from October 28, 2026 (including where the pension holder died before this date), and where the pension holder died before age 75.

Note, however, that ordinary survivor's pensions paid by defined-benefit schemes are generally still taxable income under UK rules, regardless of whether the deceased died before 75.

This measure was among the less-publicised elements of the budget, which also included, for example, confirmation of a 3.9% increase in the state pension from April 2027 and of changes to the triple-lock mechanism potentially applying from 2030.

The latter change, expected to see the state pension rise more slowly than it would have otherwise done in the longer term, is to be legislated for before the next general election (set for 2029 at the latest) but could be reversed again if a different party wins. 

What the death benefits measure involves

If a pension scheme member dies before age 75, death benefits paid to beneficiaries are often only UK income tax free if they are paid out within two years of when the scheme administrator became aware of the death (or should reasonably have been expected to be aware of it).

If the window is missed then the money is subject to income tax.

According to international tax experts Eversheds, there are “many examples of the two-year deadline being missed, for example where potential recipients of death benefits are hard to track down, where there are conflicting claims from potential beneficiaries which are not easily resolved or due to administrative challenges”.

The rule change will therefore avoid tax being payable by many family members of people who held certain occupational and private pensions, such as defined-benefit workplace pensions, defined contribution workplace pensions and personal pensions such as SIPPs.

The main benefits affected are qualifying lump sums, inherited pension drawdown payments and certain beneficiary annuities.

The change does not, however, mean all pension death benefits will be tax-free, as other rules and limits will continue to apply.

Impact for Britons living in France

Note also, that for beneficiaries living in France, exemption from UK income tax does not necessarily mean exemption from tax in France, where the treatment will depend on the nature of the payment and relevant international tax rules.

The change may, however, benefit people living in France whose UK pension death benefits pass to relatives in Britain, as well as some beneficiaries in France, including spouses receiving lump-sum payments from UK public service pension schemes. 

Among those expected to benefit from the measure are families of deceased civil servants, whose pensions have been subject to administrative problems recently, according to the chairman of the House of Commons public accounts committee Geoffrey Clifton-Brown.

In a letter to the government on October 14, Sir Geoffrey expressed disbelief that families of deceased civil servants could be taxed because of delays, saying the "chaos engulfing the Civil Service Pension Scheme" made it unlikely that death benefits would be paid within two years.

Responding to the budget, he said: “This is a welcome announcement from government that I hope will go some way to reassuring civil service members caught up in an avoidable crisis that should never have escalated to this degree.

“This announcement is not to absolve Capita from processing and making payments to members of this scheme in a timely manner. Our committee will continue to scrutinise this ongoing crisis and its impact closely.”

The legislation to implement the death-benefit change is still to come, in the Finance Bill 2026–27, but HMRC has already instructed pension administrators to apply the new treatment to qualifying payments from October 28, 2026.