Finance (No. 2) Act 2005

7 Charge to income tax on lump sum

(1) A charge to income tax arises where a person becomes entitled to a social security pension lump sum.

(2) For the purposes of the Tax Acts (including subsection (5)) a social security pension lump sum—

(a) is to be treated as income, but

(b) is not to be taken into account in determining the total income of any person.

(3) The person liable to a charge under this section is the person (“P”) entitled to the lump sum, whether or not P is resident, ordinarily resident or domiciled in the United Kingdom.

(4) The charge is imposed on P for the applicable year of assessment (see subsection (6)).

(5) A charge under this section is a charge in respect of the amount of the lump sum at the following rate—

(a) if P’s total income for the applicable year of assessment is nil, 0%;

(b) if P’s total income for that year of assessment is greater than nil but does not exceed the starting rate limit for that year, the starting rate for that year;

(c) if P’s total income for that year of assessment exceeds the starting rate limit but does not exceed the basic rate limit for that year, the basic rate for that year;

(d) if P’s total income for that year of assessment exceeds the basic rate limit for that year, the higher rate for that year.

(6) Section 8 makes provision as to the meaning of “the applicable year of assessment” for the purposes of this section.

(7) Section 9 contains further definitions and makes provision as to commencement.

(8) Section 10 contains consequential amendments.