R04 Tax treatment of death benefits: free practice questions
5 free questions on Tax treatment of death benefits, part of learning outcome 2 (HMRC tax regime). Pick an answer to check it, or open the answer to see why each option is right or wrong.
Question 1 of 5
Which form of death benefit can a dependant receive but a nominee cannot?
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The answer is C: A dependant's scheme pension
Only a dependant can receive a continuing scheme pension. Nominees and successors can take drawdown, an annuity or a lump sum.
Why the other options are wrong
A
Nominees can use flexi-access drawdown.
B
Nominees can buy an annuity.
D
Nominees can take a lump sum.
Question 2 of 5
Which recipient is NOT a non-qualifying person for the special lump-sum death benefits charge?
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The answer is C: An individual acting as a bare trustee
Non-qualifying persons include companies and individuals acting as trustees (other than bare trustees), personal representatives, directors or partners.
Why the other options are wrong
A
Companies are non-qualifying.
B
Personal representatives are non-qualifying.
D
Discretionary trustees are non-qualifying.
Question 3 of 5
Hugh bought an annuity with protection in 2021 and dies at 72 in 2026. How is the protection lump sum taxed?
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The answer is C: Tax-free, with no LSDBA test, as it predates April 2024
Annuities bought before 6 April 2024 were tested against the LTA, so a protection lump sum on death under 75 is tax-free without an LSDBA test. The two-year window doesn't apply to these.
Why the other options are wrong
A
The two-year window doesn't apply to annuity protection.
B
Pre-April 2024 crystallised funds aren't tested.
D
Death before 75 means it isn't taxable.
Question 4 of 5
Jim dies at 69 within his annuity's guarantee period. His sister, a higher rate taxpayer, commutes the remaining £22,000 of payments. How is it taxed?
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The answer is D: As her income, leaving her £13,200 after tax
A trivial commutation lump-sum death benefit is always taxed as the recipient's income, whatever the age at death. At 40% she keeps £13,200.
Why the other options are wrong
A
The 45% charge applies to non-qualifying persons.
B
The under-75 exemption doesn't apply to trivial commutation lump sums.
C
It isn't an RBCE.
Question 5 of 5
Ann dies at 64. Her husband uses her uncrystallised fund to buy a dependant's annuity three years after the scheme learnt of her death. How is his income taxed?
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The answer is D: As his pension income, being outside the two-year window
Income is tax-free only if entitlement arises within the two-year window. Outside it, the income is taxable.
Why the other options are wrong
A
No 45% rate applies to income.
B
Income isn't tested against the LSDBA.
C
Death before 75 isn't enough; the window must be met too.
Practise all 26 Tax treatment of death benefits questions
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