Finance Act 2004

Pension commencement lump sum U.K.

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

F1 [F2 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(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 [F3 lump 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 [F4 beginning six months before, and ending one year after,] the day on which the member becomes entitled to it,

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

F5 (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . and

(f) it is not an excluded lump sum (see [F6 sub-paragraph (4A)]).

(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 F7 [F8 ... under the pension scheme] under which the member becomes entitled to the lump sum.

F9 (3A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F10 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F11 (4A) A lump sum is an excluded lump sum if the pension in connection with which the member becomes entitled to it is a CMP-derived drawdown pension.]

(5) Paragraph 2 defines the permitted maximum.

F12 (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F1 Sch. 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)

F2 Sch. 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)

F3 Words 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)

F4 Words 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)

F5 Words 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)

F6 Words in Sch. 29 para. 1(1)(f) substituted (for the tax year 2024-25 and subsequent tax years) by Finance Act 2024 (c. 3), Sch. 9 paras. 26(2)(a)(ii), 124 (with Sch. 9 paras. 125-132A) (as amended by S.I. 2024/356, regs. 1, 4)

F7 Words 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)

F8 Words in Sch. 29 para. 1(3)(b) substituted (6.4.2006) by Finance Act 2005 (c. 7), Sch. 10 paras. 34(2), 64(1)

F9 Sch. 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)

F10 Sch. 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)

F11 Sch. 29 para. 1(4A) substituted (11.7.2023) by Finance (No. 2) Act 2023 (c. 30), s. 24(7)

F12 Sch. 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)

Modifications etc. (not altering text)

C3 Sch. 29 Pt. 1 modified (6.4.2006) by The Taxation of Pension Schemes (Transitional Provisions) Order 2006 (S.I. 2006/572), arts. 1(1), 25(1)(2)(4)

C4 Sch. 29 Pt. 1 applied (with modifications) (6.4.2006) by The Pension Protection Fund (Tax) Regulations 2006 (S.I. 2006/575), regs. 1, 11

C5 Sch. 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

C6 Sch. 29 para. 1 modified (27.7.2010) by Finance (No. 2) Act 2010 (c. 31), Sch. 3 para. 7

C7 Sch. 29 para. 1(1) modified (6.4.2006) by The Taxation of Pension Schemes (Transitional Provisions) Order 2006 (S.I. 2006/572), arts. 1(1), 18

F13 1A U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F13 Sch. 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)

F14 1B U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F14 Sch. 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)

[F15 2 U.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 individual 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 individual becoming entitled to the lump sum (see paragraph 12A).]

Textual Amendments

F15 Sch. 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)

[F16 2A (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

F16 Sch. 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)

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

F16 Sch. 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)

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

(a) a scheme pension under a defined benefits arrangement, or

(b) a collective money purchase arrangement.

(2) The applicable amount is (subject to sub-paragraph (3))—

where—

• A is the amount of the lump sum;

• B is the relevant revaluation 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);

• D is so much (if any) of A or C as represents rights which are attributable to a disqualifying pension credit.

(3) In determining C for the purposes of subsection (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.

Textual Amendments

F16 Sch. 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)

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

F16 Sch. 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)

F16 3 U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F16 Sch. 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)