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Finance Act 2004

Pension commencement lump sumU.K.

1(1)For the purposes of this Part a lump sum is a pension commencement lump sum if—U.K.

F1(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F2(aa)the member becomes entitled to it in connection with becoming entitled to a relevant pension (or dies after becoming entitled to it but before becoming entitled to the relevant pension in connection with which it was anticipated that the member would become entitled to it)],

(b)it is paid when all or part of the member’s [F3lump sum allowance is available, and all or part or the member’s lump sum and death benefit allowance is available (see paragraph 12A),]

(c)it is paid within the period [F4beginning six months before, and ending one year after,] the day on which the member becomes entitled to it [F5, and]

(d)it is paid when the member has reached normal minimum pension age (or the ill-health condition is satisfied),

F6(e). . . . . . . . . . . . . . . . . . . . . . . . . . . . . F7...

F7(f). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2)But if a lump sum falling within sub-paragraph (1) exceeds the permitted maximum, the excess is not a pension commencement lump sum.

(3)A pension is a relevant pension if—

(a)it is income withdrawal, a lifetime annuity or a scheme pension, and

(b)the member becomes entitled to it F8... [F9under the pension scheme] under which the member becomes entitled to the lump sum.

F10(3A). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F11(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F12(4A). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5)Paragraph 2 defines the permitted maximum.

F13(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F1Sch. 29 para. 1(1)(a) omitted (with effect in accordance with Sch. 16 paras. 85, 101 of the amending Act) by virtue of Finance Act 2011 (c. 11), Sch. 16 para. 24(2)(a)

F2Sch. 29 para. 1(1)(a)(aa) substituted (retrospective to 6.4.2006) for Sch. 29 para. 1(1)(a) by Finance Act 2007 (c. 11), Sch. 20 paras. 11(2)(a), 24(3)

F3Words in Sch. 29 para. 1(1)(b) substituted (for the tax year 2024-25 and subsequent tax years) by Finance Act 2024 (c. 3), Sch. 9 paras. 26(2)(a)(i), 124 (with Sch. 9 paras. 125-132A) (as amended by S.I. 2024/356, regs. 1, 4; and (18.11.2024 for the tax year 2024-25 and subsequent tax years) by S.I. 2024/1012, regs. 1(2)(3), 17)

F4Words in Sch. 29 para. 1(1)(c) substituted (retrospective to 6.4.2006) by Finance Act 2007 (c. 11), Sch. 20 paras. 11(2)(b), 24(3)

F6Words in Sch. 29 para. 1(1)(e) omitted (retrospective to 6.4.2006) by virtue of Finance Act 2007 (c. 11), Sch. 20 paras. 11(2)(c), 24(3)

F7Sch. 29 para. 1(1)(f) and preceding word omitted (24.5.2024) by virtue of Finance (No. 2) Act 2024 (c. 12), s. 24(6)(b)

F8Words in Sch. 29 para. 1(3)(b) omitted (with effect in accordance with Sch. 16 paras. 85, 101 of the amending Act) by virtue of Finance Act 2011 (c. 11), Sch. 16 para. 79(2)

F9Words in Sch. 29 para. 1(3)(b) substituted (6.4.2006) by Finance Act 2005 (c. 7), Sch. 10 paras. 34(2), 64(1)

F10Sch. 29 para. 1(3A) omitted (for the tax year 2024-25 and subsequent tax years) by virtue of Finance Act 2024 (c. 3), Sch. 9 paras. 26(2)(b), 124 (with Sch. 9 paras. 125-132A) (as amended by S.I. 2024/356, regs. 1, 4; and (18.11.2024 for the tax year 2024-25 and subsequent tax years) by S.I. 2024/1012, regs. 1(2)(3), 17)

F11Sch. 29 para. 1(4) omitted (for the tax year 2024-25 and subsequent tax years) by virtue of Finance Act 2024 (c. 3), Sch. 9 paras. 26(2)(b), 124 (with Sch. 9 paras. 125-132A) (as amended by S.I. 2024/356, regs. 1, 4; and (18.11.2024 for the tax year 2024-25 and subsequent tax years) by S.I. 2024/1012, regs. 1(2)(3), 17)

F13Sch. 29 para. 1(6) omitted (for the tax year 2024-25 and subsequent tax years) by virtue of Finance Act 2024 (c. 3), Sch. 9 paras. 26(2)(b), 124 (with Sch. 9 paras. 125-132A) (as amended by S.I. 2024/356, regs. 1, 4; and (18.11.2024 for the tax year 2024-25 and subsequent tax years) by S.I. 2024/1012, regs. 1(2)(3), 17)

Modifications etc. (not altering text)

C4Sch. 29 Pt. 1 applied (with modifications) (6.4.2006) by The Pension Protection Fund (Tax) Regulations 2006 (S.I. 2006/575), regs. 1, 11

C5Sch. 29 para. 1 modified (6.4.2006) by The Taxation of Pension Schemes (Transitional Provisions) Order 2006 (S.I. 2006/572), arts. 1(1), 28; (as amended (18.11.2024 for the tax year 2024-25 and subsequent tax years) by S.I. 2024/1012, regs. 1(2)(3), 25(18))

C6Sch. 29 para. 1 modified (27.7.2010) by Finance (No. 2) Act 2010 (c. 31), Sch. 3 para. 7

F141AU.K.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F14Sch. 29 para. 1A omitted (for the tax year 2024-25 and subsequent tax years) by virtue of Finance Act 2024 (c. 3), Sch. 9 paras. 26(3), 124 (with Sch. 9 paras. 125-132A) (as amended by S.I. 2024/356, regs. 1, 4; and (18.11.2024 for the tax year 2024-25 and subsequent tax years) by S.I. 2024/1012, regs. 1(2)(3), 17)

F151BU.K.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F15Sch. 29 para. 1B omitted (for the tax year 2024-25 and subsequent tax years) by virtue of Finance Act 2024 (c. 3), Sch. 9 paras. 26(3), 124 (with Sch. 9 paras. 125-132A) (as amended by S.I. 2024/356, regs. 1, 4; and (18.11.2024 for the tax year 2024-25 and subsequent tax years) by S.I. 2024/1012, regs. 1(2)(3), 17)

[F162U.K.In paragraph 1 “the permitted maximum”, in relation to a lump sum, means the lowest of the following amounts—

(a)the applicable amount in relation to the relevant pension (see paragraphs 2A to 2D);

(b)so much of the member’s lump sum allowance as is available on the [F17member] becoming entitled to the lump sum (see paragraph 12A);

(c)so much of the member’s lump sum and death benefit allowance as is available on the [F18member] becoming entitled to the lump sum (see paragraph 12A).]

Textual Amendments

F16Sch. 29 para. 2 substituted (for the tax year 2024-25 and subsequent tax years) by Finance Act 2024 (c. 3), Sch. 9 paras. 26(4), 124 (with Sch. 9 paras. 125-132A) (as amended by S.I. 2024/356, regs. 1, 4; and (18.11.2024 for the tax year 2024-25 and subsequent tax years) by S.I. 2024/1012, regs. 1(2)(3), 17)

[F192A(1)This paragraph defines “the applicable amount” in relation to a relevant pension in a case in which the relevant pension is income withdrawal.U.K.

(2)The applicable amount is one third of the scheme pension capital value.

(3)The scheme pension capital value is (subject to sub-paragraph (4)) the aggregate of—

(a)the sums designated as available for the payment of drawdown pension on that occasion, and

(b)the market value of the assets so designated.

(4)There is to be deducted from the amount determined under sub-paragraph (3) so much (if any) of the sums and assets designated as mentioned in sub-paragraph (3)(a) or (b) as represent rights attributable to a disqualifying pension credit.

Textual Amendments

F19Sch. 29 paras. 2A-2D substituted for Sch. 29 para. 3 (for the tax year 2024-25 and subsequent tax years) by Finance Act 2024 (c. 3), Sch. 9 paras. 26(5), 124 (with Sch. 9 paras. 125-132A) (as amended by S.I. 2024/356, regs. 1, 4; and (18.11.2024 for the tax year 2024-25 and subsequent tax years) by S.I. 2024/1012, regs. 1(2)(3), 17)

2B(1)This paragraph defines “the applicable amount” in relation to a relevant pension in a case in which the relevant pension is a lifetime annuity.U.K.

(2)The applicable amount is one third of the annuity purchase price.

(3)The annuity purchase price is (subject to sub-paragraph (4)) the aggregate of—

(a)such of the sums held for the purposes of the pension scheme, and

(b)the market value of such of the assets held for the purposes of the pension scheme,

as are applied in (or in connection with) the purchase of the lifetime annuity and any related dependants’ annuity and any related nominees’ annuity.

(4)There is to be deducted from the amount determined under sub-paragraph (3)—

(a)if the sums or assets applied in (or in connection with) the purchase of the annuity or any related dependants’ annuity or any related nominees’ annuity consist of, or include, sums or assets representing the whole or part of the member’s drawdown pension fund or of the member's flexi-access drawdown fund, the aggregate of those sums and the market value of those assets, and

(b)in any case, so much (if any) of the sums or assets applied in (or in connection with) the purchase of the annuity or any related dependants’ annuity or any related nominees’ annuity as represents rights which are attributable to a disqualifying pension credit.

Textual Amendments

F19Sch. 29 paras. 2A-2D substituted for Sch. 29 para. 3 (for the tax year 2024-25 and subsequent tax years) by Finance Act 2024 (c. 3), Sch. 9 paras. 26(5), 124 (with Sch. 9 paras. 125-132A) (as amended by S.I. 2024/356, regs. 1, 4; and (18.11.2024 for the tax year 2024-25 and subsequent tax years) by S.I. 2024/1012, regs. 1(2)(3), 17)

2C(1)This paragraph defines “the applicable amount” in relation to a relevant pension in a case in which the relevant pension is [F20a scheme pension under]—U.K.

(a)F21... a defined benefits arrangement, or

(b)a collective money purchase arrangement.

(2)F22The applicable amount is (subject to [F23sub-paragraphs (3) and (4)])—

where—

  • A is the amount of the lump sum;

  • B is the relevant [F24valuation] factor (see section 276);

  • C is the amount of the pension which will be payable to the member in the period of 12 months beginning with the day on which the member becomes entitled to the pension (assuming that it remains payable throughout that period at the rate at which it is payable on that day);

  • F25...

(3)In determining C for the purposes of [F26sub-paragraph] (2) in a case in which the pension is under a public service pension scheme, any abatement of the pension is to be left out of account.

[F27(4)For the purposes of sub-paragraph (2), any part of what would otherwise be A or C which represents rights attributable to a disqualifying pension credit is to be disregarded.]

Textual Amendments

F19Sch. 29 paras. 2A-2D substituted for Sch. 29 para. 3 (for the tax year 2024-25 and subsequent tax years) by Finance Act 2024 (c. 3), Sch. 9 paras. 26(5), 124 (with Sch. 9 paras. 125-132A) (as amended by S.I. 2024/356, regs. 1, 4; and (18.11.2024 for the tax year 2024-25 and subsequent tax years) by S.I. 2024/1012, regs. 1(2)(3), 17)

F21Words in Sch. 29 para. 2C(1)(a) omitted (18.11.2024 for the tax year 2024-25 and subsequent tax years) by virtue of The Pensions (Abolition of Lifetime Allowance Charge etc) (No. 3) Regulations 2024 (S.I. 2024/1167), regs. 1(2)(3), 2(2)(a)(ii) (with reg. 6)

F22Sch. 29 para. 2C(2): word “- D” in formula omitted (18.11.2024 for the tax year 2024-25 and subsequent tax years) by virtue of The Pensions (Abolition of Lifetime Allowance Charge etc) (No. 3) Regulations 2024 (S.I. 2024/1167), regs. 1(2)(3), 2(2)(b)(ii) (with reg. 6)

F23Words in Sch. 29 para. 2C(2) substituted (18.11.2024 for the tax year 2024-25 and subsequent tax years) by The Pensions (Abolition of Lifetime Allowance Charge etc) (No. 3) Regulations 2024 (S.I. 2024/1167), regs. 1(2)(3), 2(2)(b)(i) (with reg. 6)

F25Words in Sch. 29 para. 2C(2) omitted (18.11.2024 for the tax year 2024-25 and subsequent tax years) by virtue of The Pensions (Abolition of Lifetime Allowance Charge etc) (No. 3) Regulations 2024 (S.I. 2024/1167), regs. 1(2)(3), 2(2)(b)(iv) (with reg. 6)

F26Word in Sch. 29 para. 2C(3) substituted (18.11.2024 for the tax year 2024-25 and subsequent tax years) by The Pensions (Abolition of Lifetime Allowance Charge etc) (No. 3) Regulations 2024 (S.I. 2024/1167), regs. 1(2)(3), 2(2)(c) (with reg. 6)

2D(1)This paragraph defines “the applicable amount” in relation to a relevant pension in a case in which the relevant pension is a scheme pension under a money purchase arrangement that is not a collective money purchase arrangement.U.K.

(2)The applicable amount is one third of the scheme pension purchase price.

(3)The scheme pension purchase price is (subject to sub-paragraph (4)) the aggregate of—

(a)such of the sums held for the purposes of the pension scheme, and

(b)the market value of such of the assets held for the purposes of the pension scheme,

as are applied in (or in connection with) the purchase or provision of the scheme pension and any related dependants’ scheme pension.

(4)There is to be deducted from the amount determined under sub-paragraph (3)—

(a)if the scheme pension is funded (in whole or in part) by the application of sums or assets representing the whole or part of the member’s drawdown pension fund or of the member’s flexi-access drawdown fund, the aggregate of those sums and the market value of those assets, and

(b)in any case, so much (if any) of the sums and assets referred to in sub-paragraph (3)(a) and (b) as represent rights which are attributable to a disqualifying pension credit.]

Textual Amendments

F19Sch. 29 paras. 2A-2D substituted for Sch. 29 para. 3 (for the tax year 2024-25 and subsequent tax years) by Finance Act 2024 (c. 3), Sch. 9 paras. 26(5), 124 (with Sch. 9 paras. 125-132A) (as amended by S.I. 2024/356, regs. 1, 4; and (18.11.2024 for the tax year 2024-25 and subsequent tax years) by S.I. 2024/1012, regs. 1(2)(3), 17)

F193U.K.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F19Sch. 29 paras. 2A-2D substituted for Sch. 29 para. 3 (for the tax year 2024-25 and subsequent tax years) by Finance Act 2024 (c. 3), Sch. 9 paras. 26(5), 124 (with Sch. 9 paras. 125-132A) (as amended by S.I. 2024/356, regs. 1, 4; and (18.11.2024 for the tax year 2024-25 and subsequent tax years) by S.I. 2024/1012, regs. 1(2)(3), 17)