What Happens to Your SIPP When You Die? Inheritance Rules Explained

By Team SalaryCalculate · 7/7/2025

A Self-Invested Personal Pension (SIPP) offers more than just tax advantages during your lifetime — it also comes with unique estate planning benefits. Understanding what happens to your SIPP when you die is crucial for ensuring your pension savings go to the right people, in the most tax-efficient way possible. This guide explains the inheritance rules, tax treatment, nomination options, and steps your beneficiaries must take.

Can a SIPP Be Inherited?

Yes — your SIPP does not die with you. It can be passed on to:

A spouse or civil partner
Children or grandchildren
Anyone you nominate (including friends or charities)

Your pension savings remain outside your estate for Inheritance Tax (IHT) purposes.

What Taxes Apply on Death?

The tax treatment depends on your age at death:

If you die before age 75:

Your beneficiaries can receive your SIPP 100% tax-free
Applies whether they take a lump sum or income
Must be designated within 2 years of death to avoid tax

If you die age 75 or older:

Your beneficiaries will pay income tax at their marginal rate
No Inheritance Tax (IHT) on the SIPP
Can still be taken as lump sum or income (drawdown/annuity)

More: GOV.UK – Pensions and inheritance tax

Who Can Inherit a SIPP?

You can nominate:

Dependants: Spouse, civil partner, children under 23, disabled dependants
Nominees: Any other individual you specify
Successors: Someone nominated by your beneficiary after they inherit

You can also leave your SIPP to a trust or charity, depending on your provider’s rules.

How to Nominate a Beneficiary

Contact your SIPP provider and fill out an Expression of Wish form. This is not legally binding, but it guides the pension trustees.

Key tips:

Keep it up to date (especially after marriage, divorce, children)
You can nominate multiple people and specify percentages
Review it every few years or after major life events

What Options Do Beneficiaries Have?

Your beneficiary can choose to:

Take a lump sum
- Entire fund paid out at once
- Tax-free if you died before 75
Use income drawdown
- Keep the fund invested and take flexible withdrawals
Buy an annuity
- Purchase guaranteed income for life

These options may vary depending on the provider and the beneficiary’s age.

Common Mistakes to Avoid

Not naming a beneficiary – may lead to delays or default choices
Assuming children can’t inherit – they can, but providers have limits
Missing the 2-year deadline for tax-free death benefits
Forgetting to update nominations after remarriage or divorce

Example Scenarios

1. Jane dies at 72 with a £150,000 SIPP

Her son receives the full amount tax-free within 2 years

2. Robert dies at 78 with a £250,000 SIPP

His wife is a nominee
She takes income drawdown
Withdrawals are taxed at her income tax rate

3. Amira dies with no nomination form

The SIPP provider distributes funds at their discretion
May delay access or tax-free benefits

Summary

A SIPP is one of the most inheritance-friendly investment vehicles available. If you die before 75, your loved ones may pay no tax at all. Even after 75, they’ll only pay income tax, not inheritance tax. By keeping your nominations updated and understanding the rules, you can ensure your pension savings support those who matter most.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Speak to a qualified adviser before making pension decisions.