Finance Act 2024

Amendments of the Taxation of Pension Schemes (Transitional Provisions) Order 2006 U.K.

95 (1) The Taxation of Pension Schemes (Transitional Provisions) Order 2006 (S.I. 2006/572) is amended as follows.

(2) In article 25A (conditions to be met by stand-alone lump sums), in paragraph (3), for “benefit crystallisation event” substitute “relevant benefit crystallisation event”.

(3) In article 25B (circumstances in which stand-alone lump sums are paid), in paragraph (2), for “paragraph 2 of Schedule 29” substitute “Chapter 15A of Part 9 of ITEPA 2003”.

(4) In article 25C (payment of stand-alone lump sums: tax consequences), for paragraphs (2) and (3A) substitute—

“(1A) Articles 25CA to 25CC apply for the purposes of determining the tax treatment of a stand-alone lump sum.”

(5) After article 25C insert—

“25CA. Circumstance A: tax treatment of stand-alone lump sums

(1) Chapter 15A of Part 9 of ITEPA 2003 (pension income: lump sums under registered pension schemes) has effect with the following modifications for the purposes of determining the income tax treatment of a stand-alone lump sum paid to a member of a pension scheme in circumstances where article 25B(2) (circumstance A) applies.

(2) That Chapter has effect as if, after section 637G (trivial commutation lump sums and winding-up lump sums) there were inserted—

“637GA Stand-alone lump sums

(1) Subject to subsection (2), no liability to income tax arises on a stand-alone lump sum paid under a registered pension scheme.

(2) If the amount of the stand-alone lump sum exceeds the permitted maximum, section 579A (pensions) applies to the excess as it applies to any pension under a registered pension scheme.

(3) In subsection (2) “the permitted maximum”, in relation to a stand-alone lump sum, means the lower of—

(a) the maximum amount of a stand-alone lump sum that could have been paid to the individual with no liability to income tax on 5 April 2023, and

(b) so much of the individual’s lump sum and death benefit allowance as is available immediately before the individual becomes entitled to the lump sum (see section 637S).”

(3) Section 637Q of ITEPA 2003 (availability of individual’s lump sum allowance) has effect as if, in the definition of “relevant lump sum” in subsection (2)(b) of that section, there were included a reference to a stand-alone lump sum.

(4) Section 637S of ITEPA 2003 (availability of individual’s lump sum and death benefit allowance) has effect as if, in the definition of “relevant lump sum” in subsection (2)(b) of that section, there were included a reference to a stand-alone lump sum.

25CB. Circumstance B: tax treatment of stand-alone lump sums

(1) Chapter 15A of Part 9 of ITEPA 2003 (pension income: lump sums under registered pension schemes) has effect with the following modifications for the purposes of determining the income tax treatment of a stand-alone lump sum paid to a member of a pension scheme in circumstances where article 25B(3) (circumstance B) applies.

(2) That Chapter has effect as if, after section 637G (trivial commutation lump sums and winding-up lump sums) there were inserted—

“637GA Stand-alone lump sums

(1) Subject to subsection (2), no liability to income tax arises on a stand-alone lump sum paid under a registered pension scheme.

(2) If the amount of the stand-alone lump sum exceeds the permitted maximum, section 579A (pensions) applies to the excess as it applies to any pension under a registered pension scheme.

(3) In subsection (2) “the permitted maximum”, in relation to a stand-alone lump sum, means—

(a) the amount of a stand-alone lump sum that could have been paid to the individual with no liability to income tax on 5 April 2023 under the arrangement pursuant to which the entitlement to the stand-alone lump sum arises in respect of the individual, less

(b) the aggregate of the amounts of any stand-alone lump sums and pension commencement lump sums previously paid to the individual under that arrangement after that date.”

(3) Section 637Q of ITEPA 2003 (availability of individual’s lump sum allowance) has effect as if, in the definition of “relevant lump sum” in subsection (2)(b) of that section, there were included a reference to a stand-alone lump sum.

(4) Section 637S of ITEPA 2003 (availability of individual’s lump sum and death benefit allowance) has effect as if, in the definition of “relevant lump sum” in subsection (2)(b) of that section, there were included a reference to a stand-alone lump sum.

25CC. Circumstance C: tax treatment of stand-alone lump sums

(1) Chapter 15A of Part 9 of ITEPA 2003 (pension income: lump sums under registered pension schemes) has effect with the following modifications for the purposes of determining the income tax treatment of a stand-alone lump sum paid to a member of a pension scheme in circumstances where article 25B(4) (circumstance C) applies.

(2) That Chapter has effect as if, after section 637G (trivial commutation lump sums and winding-up lump sums) there were inserted—

“637GA Stand-alone lump sums

(1) Subject to subsection (2), no liability to income tax arises on a stand-alone lump sum paid under a registered pension scheme.

(2) If the amount of the stand-alone lump sum exceeds the permitted maximum, section 579A (pensions) applies to the excess as it applies to any pension under a registered pension scheme.

(3) In subsection (2) “the permitted maximum”, in relation to a stand-alone lump sum, means the lower of—

(a) the maximum amount of a stand-alone lump sum that could have been paid to the individual with no liability to income tax on 5 April 2023, and

(b) so much of the individual’s lump sum and death benefit allowance as is available immediately before the individual becomes entitled to the lump sum (see section 637S).”

(3) Section 637Q of ITEPA 2003 (availability of individual’s lump sum allowance), has effect as if, in the definition of “relevant lump sum” in subsection (2)(b) of that section, there were included a reference to a stand-alone lump sum.

(4) For the purposes of that section, the “non-taxable amount” of a stand-alone lump sum is to be treated as being an amount equal to 25% of the lump sum.

(5) Section 637S of ITEPA 2003 (availability of individual’s lump sum and death benefit allowance), in the definition of “relevant lump sum” in subsection (2)(b) of that section, there were included a reference to a stand-alone lump sum.”

(6) In article 25D (stand-alone lump sums: further provisions)—

(a) in paragraph (2)—

(i) for “VULSR — APCLS” substitute “A — B”;

(ii) omit the words from “, in the modified sub-paragraph (6)” to the end;

(b) in paragraph (3), for “in the modified sub-paragraph (6) of paragraph 2 of Schedule 29, the term “APCLS”” substitute “the term “B””.