(1) This section applies to an annual payment which—
(a) is paid voluntarily, or
(b) is capable of being discontinued,
if conditions A and B are met.
(2) Condition A is that the payment is paid to—
(a) a former employee or a former office-holder,
(b) the widow or widower or surviving civil partner of a former employee or former office-holder, or
(c) any child, relative or dependant of a former employee or a former office-holder.
(3) Condition B is that the payment is paid by or on behalf of—
(a) the person—
(i) who employed the former employee, or
(ii) under whom the former office-holder held the office, or
(b) the successors of that person.
(4) But this section applies to a payment which is paid by or on a behalf of a person who is outside the United Kingdom only if it is paid to a person resident in the United Kingdom.
(5) In this section “office” includes in particular any position which has an existence independent of the person who holds it and may be filled by successive holders.
634 Taxable pension income: UK voluntary annual payments
(1) The taxable pension income for payments to which section 633 applies is determined in accordance with this section if the payments are made by or on behalf of a person who is in the United Kingdom.
(2) The taxable pension income for a tax year is the full amount of the payments accruing in that year irrespective of when any amount is actually paid.
(1) The taxable pension income for payments to which section 633 applies is determined in accordance with this section if the payments are made by or on behalf of a person who is outside the United Kingdom.
(2) The taxable pension income for a tax year is the full amount of the pension income arising in the tax year, but subject to subsection (4) .
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) The full amount of the pension income arising in the tax year is treated as relevant foreign income for the purposes of Chapters 2 and 3 of Part 8 of ITTOIA 2005 (relevant foreign income: remittance basis and deductions and reliefs).
(5) But if that pension income arises in the Republic of Ireland, section 839 of that Act (annual payments payable out of relevant foreign income) applies with the omission of conditions B1 and B2 (and the reference to them in subsection (1)) and subsection (5)(a).
(6) See also Chapter 4 of that Part (unremittable income).
(1) This Chapter makes provision about the income tax treatment of authorised lump sums and authorised lump sum death benefits.
(2) In this Chapter—
(a) “authorised lump sum” means a lump sum permitted by the lump sum rule in section 166 of FA 2004 to be paid by a registered pension scheme to a member of the scheme;
(b) “authorised lump sum death benefit” means a lump sum death benefit permitted by the lump sum death benefit rule in section 168 of that Act to be paid by a registered pension scheme in respect of a member of the scheme.
(3) Expressions used in this Chapter and Part 4 of FA 2004 (pensions etc) have the same meaning in this Chapter as in that Part.
A person to whom a pension commencement excess lump sum is paid under a registered pension scheme is treated as having taxable pension income for the tax year in which the payment is made equal to the amount of the lump sum.
(1) Subject to subsections (2) and (4), no liability to income tax arises on a serious ill-health lump sum paid under a registered pension scheme.
(2) If—
(a) a serious ill-health lump sum is paid under a registered pension scheme to a member who (at the time of the payment) is under 75, and
(b) the 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 serious ill-health lump sum paid to a member, means so much of the member’s lump sum and death benefit allowance as is available on the member becoming entitled to the lump sum (see section 637S).
(4) If a serious ill-health lump sum is paid under a registered pension scheme to a member who (at the time of the payment) is 75 or over, section 579A (pensions) applies to the lump sum as it applies to any pension under a registered pension scheme.
(1) Subject to subsection (2), where an uncrystallised funds pension lump sum is paid under a registered pension scheme—
(a) no liability to income tax arises on 25% of the lump sum, and
(b) section 579A (pensions) applies in relation to the remainder of the lump sum as it applies to any pension under a registered pension scheme.
(2) If—
(a) an uncrystallised funds pension lump sum is paid under a registered pension scheme, and
(b) 25% of the lump sum is an amount that 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 an uncrystallised funds pension lump sum paid to a member, means the lower of the following amounts—
(a) so much of the member’s lump sum allowance as is available on the member becoming entitled to the lump sum (see section 637Q);
(b) so much of the member’s lump sum and death benefit allowance as is available on the member becoming entitled to the lump sum (see section 637S).
A short service refund lump paid under a registered pension scheme is subject to income tax in accordance with section 205 of FA 2004 (charge to tax on scheme administrator in respect of such a lump sum) but not otherwise.
637G Trivial commutation lump sums and winding-up lump sums
(1) Subject to subsection (2), a member of a registered pension scheme to whom—
(a) a trivial commutation lump sum, or
(b) a winding-up lump sum,
is paid under the scheme is treated as having taxable pension income for the tax year in which the payment is made equal to the amount of the lump sum.
(2) If, immediately before the lump sum is paid, the member has uncrystallised rights under any one or more arrangements under the pension scheme, the amount of the taxable pension income —
(a) if all the member’s rights under the pension scheme are uncrystallised rights, is 75% of the lump sum, and
(b) otherwise, is reduced by the tax-free element (if any).
(3) In subsection (2) “the tax-free element” means 25% of the value of any uncrystallised rights extinguished by the lump sum.
(4) In this section “uncrystallised rights” has the same meaning as in section 212 of FA 2004; and the value for the purposes of this section of any uncrystallised rights is to be calculated in accordance with that section.
(1) Subject to subsections (2) to (6), no liability to income tax arises on a defined benefits lump sum death benefit paid under a registered pension scheme.
(2) If—
(a) a defined benefits lump sum death benefit under a registered pension scheme is paid in respect of a member who, on death, is under 75,
(b) the lump sum is paid before the end of the relevant two year period, and
(c) the 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) If—
(a) a defined benefits lump sum death benefit under a registered pension scheme is paid in respect of a member who, on death, is under 75,
(b) the lump sum is not paid before the end of the relevant two year period, and
(c) the lump sum is paid to a qualifying person,
section 579A (pensions) applies to the lump sum as it applies to any pension under a registered pension scheme.
(4) If—
(a) a defined benefits lump sum death benefit under a registered pension scheme is paid in respect of a member who, on death, is under 75,
(b) the lump sum is not paid before the end of the relevant two year period, and
(c) the lump sum is paid to a non-qualifying person,
the lump sum is subject to income tax under section 206 of FA 2004 (special lump sum death benefits charge on scheme administrator) but not otherwise.
(5) If a defined benefits lump sum death benefit under a registered pension scheme is paid—
(a) in respect of a member who, on death, is 75 or over, and
(b) to a qualifying person,
section 579A (pensions) applies to the lump sum as it applies to any pension under a registered pension scheme.
(6) If a defined benefits lump sum death benefit under a registered pension scheme is paid—
(a) in respect of a member who, on death, is 75 or over, and
(b) to a non-qualifying person,
the lump sum is subject to income tax under section 206 of FA 2004 (special lump sum death benefits charge on scheme administrator) but not otherwise.
(7) In this section—
“non-qualifying person” has the same meaning as in section 206 of FA 2004;
“the permitted maximum”, in relation to a defined benefits lump sum death benefit paid in respect of a member, means so much of the member’s lump sum and death benefit allowance as is available on the lump sum being paid (see section 637S);
“qualifying person” means a person who is not a non-qualifying person;
“the relevant two year period” means the period of two years beginning with the day on which the scheme administrator of the scheme first knew of the member’s death or (if earlier) the day on which the scheme administrator could first reasonably have been expected to have known of it.
(1) Subject to subsections (2), (3) and (4) no liability to income tax arises on a pension protection lump sum death benefit paid under a registered pension scheme.
(2) If—
(a) a pension protection lump sum death benefit under a registered pension scheme is paid in respect of a member who, on death, is under 75, and
(b) the 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) If a pension protection lump sum death benefit under a registered pension scheme is paid—
(a) in respect of a member who, on death, is 75 or over, and
(b) to a qualifying person,
section 579A (pensions) applies to the lump sum as it applies to any pension under a registered pension scheme.
(4) If a pension protection lump sum death benefit under a registered pension scheme is paid—
(a) in respect of a member who, on death, is 75 or over, and
(b) to a non-qualifying person,
the lump sum is subject to income tax under section 206 of FA 2004 (special lump sum death benefits charge on scheme administrator) but not otherwise.
(5) In this section—
“non-qualifying person” has the same meaning as in section 206 of FA 2004;
“the permitted maximum”, in relation to a pension protection lump sum death benefit paid in respect of a member, means so much of the member’s lump sum and death benefit allowance as is available on the lump sum being paid (see section 637S);
“qualifying person” means a person who is not a non-qualifying person.
(1) Subject to subsections (2) to (6), no liability to income tax arises on an uncrystallised funds lump sum death benefit paid under a registered pension scheme.
(2) If—
(a) an uncrystallised funds lump sum death benefit under a registered pension scheme is paid in respect of a member who, on death, is under 75,
(b) the lump sum is paid before the end of the relevant two year period, and
(c) the 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) If—
(a) an uncrystallised funds lump sum death benefit under a registered pension scheme is paid in respect of a member who, on death, is under 75,
(b) the lump sum is not paid before the end of the relevant two year period, and
(c) the lump sum is paid to a qualifying person,
section 579A (pensions) applies to the lump sum as it applies to any pension under a registered pension scheme.
(4) If—
(a) an uncrystallised funds lump sum death benefit under a registered pension scheme is paid in respect of a member who, on death, is under 75,
(b) the lump sum is not paid before the end of the relevant two year period, and
(c) the lump sum is paid to a non-qualifying person,
the lump sum is subject to income tax under section 206 of FA 2004 (special lump sum death benefits charge on scheme administrator) but not otherwise.
(5) If an uncrystallised funds lump sum death benefit under a registered pension scheme is paid—
(a) in respect of a member who, on death, is 75 or over, and
(b) to a qualifying person,
section 579A (pensions) applies to the lump sum as it applies to any pension under a registered pension scheme.
(6) If an uncrystallised funds lump sum death benefit under a registered pension scheme is paid—
(a) in respect of a member who, on death, is 75 or over, and
(b) to a non-qualifying person,
the lump sum is subject to income tax under section 206 of FA 2004 (special lump sum death benefits charge on scheme administrator) but not otherwise.
(7) In this section—
“non-qualifying person” has the same meaning as in section 206 of FA 2004;
“the permitted maximum”, in relation to an uncrystallised funds lump sum death benefit paid in respect of a member, means so much of the member’s lump sum and death benefit allowance as is available on the lump sum being paid (see section 637S);
“qualifying person” means a person who is not a non-qualifying person;
“the relevant two year period” means the period of two years beginning with the day on which the scheme administrator of the scheme first knew of the member’s death or (if earlier) the day on which the scheme administrator could first reasonably have been expected to have known of it.
(1) Subject to subsections (2), (3) and (4), no liability to income tax arises on an annuity protection lump sum death benefit paid under a registered pension scheme.
(2) If—
(a) an annuity protection lump sum death benefit under a registered pension scheme is paid in respect of a member who, on death, is under 75, and
(b) the 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) If an annuity protection lump sum death benefit under a registered pension scheme is paid—
(a) in respect of a member who, on death, is 75 or over, and
(b) to a qualifying person,
section 579A (pensions) applies to the lump sum as it applies to any pension under a registered pension scheme.
(4) If an annuity protection lump sum death benefit under a registered pension scheme is paid—
(a) in respect of a member who, on death, is 75 or over, and
(b) to a non-qualifying person,
the lump sum is subject to income tax under section 206 of FA 2004 (special lump sum death benefits charge on scheme administrator) but not otherwise.
(5) In this section—
“non-qualifying person” has the same meaning as in section 206 of FA 2004;
“the permitted maximum”, in relation to an annuity protection lump sum death benefit paid in respect of a member, means so much of the member’s lump sum and death benefit allowance as is available on the lump sum being paid (see section 637S);
“qualifying person” means a person who is not a non-qualifying person.
637L Drawdown pension fund lump sum death benefits
(1) Subject to subsections (2) to (6), no liability to income tax arises on a drawdown pension fund lump sum death benefit paid under a registered pension scheme.
(2) If—
(a) a drawdown pension fund lump sum death benefit under a registered pension scheme is paid in respect of a member who, on death, is under 75,
(b) the lump sum is paid before the end of the relevant two year period, and
(c) the 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) If—
(a) a drawdown pension fund lump sum death benefit under a registered pension scheme is paid in respect of a member who, on death, is under 75,
(b) the lump sum is not paid before the end of the relevant two year period, and
(c) the lump sum is paid to a qualifying person,
section 579A (pensions) applies to the lump sum as it applies to any pension under a registered pension scheme.
(4) If—
(a) a drawdown pension fund lump sum death benefit under a registered pension scheme is paid in respect of a member who, on death, is under 75,
(b) the lump sum is not paid before the end of the relevant two year period, and
(c) the lump sum is paid to a non-qualifying person,
the lump sum is subject to income tax under section 206 of FA 2004 (special lump sum death benefits charge on scheme administrator) but not otherwise.
(5) If a drawdown pension fund lump sum death benefit under a registered pension scheme is paid—
(a) in respect of a member who, on death, is 75 or over, and
(b) to a qualifying person,
section 579A (pensions) applies to the lump sum as it applies to any pension under a registered pension scheme.
(6) If a drawdown pension fund lump sum death benefit under a registered pension scheme is paid—
(a) in respect of a member who, on death, is 75 or over, and
(b) to a non-qualifying person,
the lump sum is subject to income tax under section 206 of FA 2004 (special lump sum death benefits charge on scheme administrator) but not otherwise.
(7) A reference in this section to a “member”, in relation to a drawdown pension fund lump sum death benefit under paragraph 17(2) of Schedule 29 to FA 2004 (lump sum payable on death of dependant of deceased member), is a reference to the dependant on whose death the lump sum is payable.
(8) In this section—
“non-qualifying person” has the same meaning as in section 206 of FA 2004;
“the permitted maximum”, in relation to a drawdown pension fund lump sum death benefit paid in respect of a member, means so much of the member’s lump sum and death benefit allowance as is available on the lump sum being paid (see section 637S);
“qualifying person” means a person who is not a non-qualifying person;
“the relevant two year period” means the period of two years beginning with the day on which the scheme administrator of the scheme first knew of the member’s death or (if earlier) the day on which the scheme administrator could first reasonably have been expected to have known of it.
637M Flexi-access drawdown lump sum death benefits
(1) Subject to subsections (2) to (6), no liability to income tax arises on a flexi-access drawdown lump sum death benefit paid under a registered pension scheme.
(2) If—
(a) a flexi-access drawdown lump sum death benefit under a registered pension scheme is paid in respect of a member who, on death, is under 75,
(b) the lump sum is paid before the end of the relevant two year period, and
(c) the 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) If—
(a) a flexi-access drawdown lump sum death benefit under a registered pension scheme is paid in respect of a member who, on death, is under 75,
(b) the lump sum is not paid before the end of the relevant two year period, and
(c) the lump sum is paid to a qualifying person,
section 579A (pensions) applies to the lump sum as it applies to any pension under a registered pension scheme.
(4) If—
(a) a flexi-access drawdown lump sum death benefit under a registered pension scheme is paid in respect of a member who, on death, is under 75,
(b) the lump sum is not paid before the end of the relevant two year period, and
(c) the lump sum is paid to a non-qualifying person,
the lump sum is subject to income tax under section 206 of FA 2004 (special lump sum death benefits charge on scheme administrator) but not otherwise.
(5) If a flexi-access drawdown lump sum death benefit under a registered pension scheme is paid—
(a) in respect of a member who, on death, is 75 or over, and
(b) to a qualifying person,
section 579A (pensions) applies to the lump sum as it applies to any pension under a registered pension scheme.
(6) If a flexi-access drawdown lump sum death benefit under a registered pension scheme is paid—
(a) in respect of a member who, on death, is 75 or over, and
(b) to a non-qualifying person,
the lump sum is subject to income tax under section 206 of FA 2004 (special lump sum death benefits charge on scheme administrator) but not otherwise.
(7) A reference in this section to a “member”—
(a) in relation to a flexi-access drawdown lump sum death benefit under paragraph 17A(2) of Schedule 29 to FA 2004 (lump sum payable on death of dependant of deceased member), is a reference to the dependant on whose death the lump sum is payable;
(b) in relation to a flexi-access drawdown lump sum death benefit under paragraph 17A(3) or (4) of Schedule 29 to FA 2004 (lump sum payable on death of nominee or successor of deceased member), is a reference to the nominee or successor on whose death the lump sum is payable.
(8) In this section—
“non-qualifying person” has the same meaning as in section 206 of FA 2004;
“the permitted maximum”, in relation to a flexi-access drawdown lump sum death benefit paid in respect of a member, means so much of the member’s lump sum and death benefit allowance as is available on the lump sum being paid (see section 637S);
“qualifying person” means a person who is not a non-qualifying person;
“the relevant two year period” means the period of two years beginning with the day on which the scheme administrator of the scheme first knew of the member’s death or (if earlier) the day on which the scheme administrator could first reasonably have been expected to have known of it.
A person to whom a trivial commutation lump sum death benefit is paid under a registered pension scheme is treated as having taxable pension income for the tax year in which the payment is made equal to the amount of the lump sum.
637Q Availability of individual’s lump sum allowance
(1) This section is about the availability of an individual’s lump sum allowance on the occurrence of a relevant benefit crystallisation event (“the current event”).
(2) In this section—
(a) “relevant benefit crystallisation event”, in relation to an individual, means the individual becoming entitled to a relevant lump sum;
(b) “relevant lump sum” means—
(i) a pension commencement lump sum, or
(ii) an uncrystallised funds pension lump sum.
(3) If no relevant benefit crystallisation event has occurred in relation to the individual before the current event, the whole of the individual’s lump sum allowance is available.
(4) Otherwise, the amount of the individual’s lump sum allowance that is available is—
(a) so much of that allowance as is left after deducting the previously-used amount, or
(b) if none is left after deducting that amount, nil.
(5) For this purpose “the previously-used amount” is the aggregate of the non-taxable amounts in relation to each relevant benefit crystallisation event that has occurred in relation to the individual before the current event.
(6) In subsection (5) “non-taxable amount”, in relation to a relevant benefit crystallisation event, means so much (if any) of the relevant lump sum to which the event relates as is not, by virtue of any provision of this Chapter, taxable pension income.
(6A) Where more than one relevant benefit crystallisation event occurs in relation to an individual on the same day, it is for the individual to decide the order in which they are to be treated as occurring for the purposes of this section.
(7) A reference in this section to a relevant benefit crystallisation event is to a relevant benefit crystallisation event occurring on or after 6 April 2024.
(8) For transitional provision under which the amount of an individual’s lump sum allowance available on the occurrence of a relevant benefit crystallisation event may be reduced as a result of events occurring before 6 April 2024, see paragraph 125 of Schedule 9 to FA 2024.
637S Availability of individual’s lump sum and death benefit allowance
(1) This section is about the availability of an individual’s lump sum and death benefit allowance on the occurrence of a relevant benefit crystallisation event (“the current event”).
(2) In this section—
(a) “relevant benefit crystallisation event”, in relation to an individual, means—
(i) the individual becoming entitled to a relevant lump sum, or
(ii) a person being paid a relevant lump sum death benefit in respect of the individual;
(b) “relevant lump sum” means—
(i) a pension commencement lump sum,
(ii) a serious ill-health lump sum, or
(iii) an uncrystallised funds pension lump sum;
(c) “relevant lump sum death benefit” means any authorised lump sum death benefit other than—
(i) a charity lump sum death benefit, or
(ii) a trivial commutation lump sum death benefit.
(3) If no relevant benefit crystallisation event has occurred in relation to the individual before the current event, the whole of the individual’s lump sum and death benefit allowance is available.
(4) Otherwise, the amount of the individual’s lump sum and death benefit allowance that is available is—
(a) so much of that allowance as is left after deducting the previously-used amount, or
(b) if none is left after deducting that amount, nil.
(5) For this purpose “the previously-used amount” is the aggregate of the non-taxable amounts in relation to each relevant benefit crystallisation event that has occurred in relation to the individual before the current event.
(6) In subsection (5) “non-taxable amount”, in relation to a relevant benefit crystallisation event, means so much (if any) of the relevant lump sum, or relevant lump sum death benefit, to which the event relates as is not, by virtue of any provision of this Chapter, taxable pension income .
(7) Where more than one relevant benefit crystallisation event within subsection (2)(a)(i) occurs in relation to an individual on the same day, it is for the individual to decide the order in which they are to be treated as occurring for the purposes of this section.
(7A) The individual’s decision under subsection (7), so far as it relates to events that are relevant benefit crystallisation events for the purposes of section 637Q, must be consistent with the individual’s decision under subsection (6A) of that section.
(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9) A reference in this section to a relevant benefit crystallisation event is to a relevant benefit crystallisation event occurring on or after 6 April 2024.
(10) For transitional provision under which the amount of an individual’s lump sum and death benefit allowance available on the occurrence of a relevant benefit crystallisation event may be reduced as a result of events occurring before 6 April 2024, see paragraph 126 of Schedule 9 to FA 2024.
(11) For further transitional provision that may affect the operation of this section, see paragraph 20 of Schedule 36 to FA 2004 (pensions in payment before commencement of Part 4 of FA 2004).
637T Availability of individual’s lump sum and death benefit allowance where multiple lump sum death benefits paid
(1) This section applies where two or more relevant benefit crystallisation events within section 637S(2)(a)(ii) occur in relation to an individual.
(2) The relevant benefit crystallisation events are to be treated for the purposes of section 637S as occurring simultaneously—
(a) immediately before the individual’s death, and
(b) immediately after any pension commencement lump sum to which the individual becomes entitled immediately before death by virtue of section 166(2) of FA 2004 (lump sum rule).
(3) The amount of the individual’s lump sum and death benefit allowance that is available on the occurrence of any of the relevant benefit crystallisation events mentioned in subsection (1) is the relevant proportion of the undivided available amount.
(3A) In subsection (3), “the undivided available amount” means the amount of the individual’s lump sum and death benefit allowance that would, apart from that subsection (but after taking into account subsection (2)), be available on the occurrence of the relevant benefit crystallisation event in question.
(4) In subsection (3), “the relevant proportion” means—
AB
where—
A is the amount of the lump sum death benefit the payment of which constitutes the relevant benefit crystallisation event in question;
B is the aggregate of the amounts of each lump sum death benefit the payment of which constitutes a relevant benefit crystallisation event mentioned in subsection (1).
(5) Where any inheritance tax is attributable to the value of the individual’s notional pension property, references in subsection (4) to the amount of a lump sum death benefit are to its IHT-adjusted amount.
(6) The “IHT-adjusted amount” of a lump sum death benefit paid to a person under a registered pension scheme is (subject to subsection (7)) the amount determined as follows —
Step 1
Take the amount of the lump sum death benefit paid to the person.
Step 2
Add the amount (if any) by which the person’s entitlement to the lump sum death benefit was reduced in consequence of an adjustment under section 226B(5) of IHTA 1984.
Step 3
Deduct the amount (if any) of inheritance tax—
that is attributable to the value of the individual’s notional pension property in relation to the scheme, and
for which the person—
is, or at any time was, liable under section 200(1)(c) of IHTA 1984, or
would at any time have been liable under that provision if the tax had not previously been paid by another person.
If the result is a negative amount, the IHT-adjusted amount of the lump sum death benefit is nil.
(7) Where more than one lump sum death benefit is paid to the person under the scheme, the amount to be deducted under Step 3 is the following proportion of the amount of inheritance tax identified in that Step—
C/D
where—
“C” is the amount resulting from Step 2;
“D” is the aggregate of the amounts resulting from Step 2 in respect of each lump sum death benefit paid to the person under the scheme.
(8) In this section—
(a) “IHTA 1984” means the Inheritance Tax Act 1984;
(b) “notional pension property” has the same meaning as in IHTA 1984.
637U Availability of individual’s allowances where lump sums or lump sum death benefits already paid by non-UK schemes
(1) Subsection (2) applies where—
(a) a payment within paragraph 1(1)(a) or (b) of Schedule 34 to FA 2004 (non-UK schemes: application of certain charges and protections etc) is made (or treated by Part 4 of that Act as made) to or in respect of an individual, and
(b) the payment, or any part of it, is treated by virtue of that Schedule as—
(i) a pension commencement lump sum, or
(ii) an uncrystallised funds pension lump sum,
for the purposes of the member payment charges.
(2) In determining under section 637Q (availability of individual’s lump sum allowance) the availability of the individual’s lump sum allowance on the occurrence of any subsequent relevant benefit crystallisation event, the payment, or part of the payment, mentioned in subsection (1)(b) is to be treated as a relevant lump sum within the meaning of that section.
(3) Subsection (4) applies where—
(a) a payment within paragraph 1(1)(a) or (b) of Schedule 34 to FA 2004 (non-UK schemes: application of certain charges and protections etc) is made (or treated by Part 4 of that Act as made) to or in respect of an individual, and
(b) the payment, or any part of it, is treated by virtue of that Schedule as—
(i) a pension commencement lump sum,
(ii) a serious ill-health lump sum,
(iii) an uncrystallised funds pension lump sum, or
(iv) any authorised lump sum death benefit, other than a charity lump sum death benefit or a trivial commutation lump sum death benefit,
for the purposes of the member payment charges.
(4) In determining under section 637S (availability of individual’s lump sum and death benefit allowance) the availability of the individual’s lump sum and death benefit allowance on the occurrence of any subsequent relevant benefit crystallisation event, the payment, or part of the payment, mentioned in subsection (3)(b) is to be treated as—
(a) in a case within subsection (3)(b)(i) to (iii), a relevant lump sum within the meaning of that section;
(b) in a case within subsection (3)(b)(iv), a relevant lump sum death benefit within the meaning of that section.
(1) No liability to income tax arises on a pension or annuity if it is paid to the holder of an award for bravery in respect of the award.
(2) In this section “award for bravery” means—
the Victoria Cross,
the George Cross,
the Albert Medal,
the Edward Medal,
the Military Cross,
the Distinguished Flying Cross,
the Distinguished Conduct Medal,
the Conspicuous Gallantry Medal,
the Distinguished Service Medal,
the Military Medal,
the Distinguished Flying Medal.
639 Pensions in respect of death due to military or war service
(1) No liability to income tax arises on these pensions and allowances—
(a) a pension or allowance payable by or on behalf of the Ministry of Defence under so much of instrument specified in subsection (2), as relates to death due to—
(i) service in the armed forces of the Crown,
(ii) wartime service in the merchant navy, or
(iii) war injuries;
(b) a pension or allowance—
(i) payable by the Ministry of Defence in respect of death due to peacetime service in the armed forces of the Crown before 3rd September 1939, and
(ii) payable at rates, and subject to conditions, similar to those of a pension within paragraph (a);
(c) a pension or allowance—
(i) payable under the law of a country other than the United Kingdom, and
(ii) of a character substantially similar to a pension within paragraph (a) or (b).
(2) The instruments referred to in subsection (1)(a) are—
Defence (Local Defence Volunteers) Regulations 1940 (S.R. & O. 1940/748),
War Pensions (Coastguards) Scheme 1944 (S.R. & O. 1944/500),
War Pensions (Naval Auxiliary Personnel) Scheme 1964 (S.I. 1964/1985),
Pensions (Polish Forces) Scheme 1964 (S.I. 1964/2007),
War Pensions (Mercantile Marine) Scheme 1964 (S.I. 1964/2058),
Order by Her Majesty concerning pensions and other grants in respect of disablement or death due to service in the Home Guard (1964 Cmnd. 2563),
Order by Her Majesty concerning pensions and other grants in respect of disablement or death due to service in the Home Guard after 27th April 1952 (1964 Cmnd. 2564),
Order by Her Majesty concerning pensions and other grants in respect of disablement or death due to service in the Ulster Defence Regiment (1971 Cmnd. 4567),
Personal Injuries (Civilians) Scheme 1983 (S.I. 1983/686),
Naval, Military and Air Forces etc. (Disablement and Death) Service Pensions Order 1983 (S.I. 1983/883).
(3) The Treasury may by order amend subsection (2).
640 Exemption under section 639 where income withheld
(1) This section applies if—
(a) an individual is entitled to both of the following—
(i) a pension or allowance mentioned in section 639 (“pension A”), and
(ii) any other pension or allowance (“pension B”), and
(b) the whole or a part of pension A is withheld because of the individual’s entitlement to pension B.
(2) In such a case, an amount of pension B equal to the withheld amount of pension A is treated for the purposes of section 639 as part of pension A.
640A Lump sums provided under armed forces early departure scheme
No liability to income tax arises on a lump sum provided under a scheme established by the Armed Forces Early Departure Payments Scheme Order 2005 (S.I. 2005/437) or the Armed Forces Early Departure Payments Scheme Regulations 2014 (S.I. 2014/2328).
(1) No liability to income tax arises on—
(a) a wounds pension granted to a member of the armed forces of the Crown;
(b) retired pay of a disabled officer granted on account of medical unfitness attributable to or aggravated by service in the armed forces of the Crown;
(c) a disablement or disability pension granted to a member of the armed forces of the Crown, other than a commissioned officer, on account of medical unfitness attributable to or aggravated by service in the armed forces of the Crown;
(d) a disablement pension granted to a person who has been employed in the nursing services of any of the armed forces of the Crown on account of medical unfitness attributable to or aggravated by service in the armed forces of the Crown;
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(f) an injury or disablement pension payable under any War Risks Compensation Scheme for the Mercantile marine;
(g) a pension—
(i) granted to a person on account of disablement, and
(ii) payable under any scheme made under section 3, 4 or 5 of the Pensions (Navy, Army, Air Force and Mercantile Marine) Act 1939 (c. 83).
(h) a benefit under a scheme established by an order under section 1(2) of the Armed Forces (Pensions and Compensation) Act 2004 payable to a person by reason of his illness or injury—
(i) by way of a lump sum, or
(ii) following the termination of the person's service in the armed forces or reserve forces.
(2) But if the Secretary of State certifies that a pension or retired pay of a kind listed in subsection (1) is only partly attributable to disablement or disability, that subsection applies only to the part attributable to disablement or disability.
642 Compensation for National-Socialist persecution
No liability to income tax arises on a pension or annuity which is payable under any special provision for victims of National-Socialist persecution which is made by the law of—
(a) the Federal Republic of Germany or any part of it, or
(b) Austria.
642A Netherlands Benefit Act for Victims of Persecution 1940-1945
No liability to income tax arises on a pension, annuity, allowance or other payment provided in accordance with the provisions of the scheme established under the law of the Netherlands and known as Wet uitkeringen vervolgingsslachtoffers 1940-1945.
643 Malawi, Trinidad and Tobago and Zambia government pensions
(1) No liability to income tax arises on—
(a) a Malawi government pension,
(b) a Trinidad and Tobago government pension, or
(c) a Zambia government pension,
if conditions A, B and C are met.
(2) Condition A is that the pension is paid to—
(a) the original pensioner, or
(b) the widow or widower or surviving civil partner of the original pensioner.
(3) Condition B is that the pension is now paid under section 1 of OPA 1973 (whether or not it is paid out of a fund established under a scheme made under that section).
(4) Condition C is that, at the time the pension is paid, provision is made by double taxation relief arrangements which would exempt the pension from income tax in the United Kingdom if the pension were still paid by the relevant government (rather than under section 1 of OPA 1973).
(5) Subsection (1) does not apply to any part of a pension which is paid because the Pensions (Increase) Act 1971 (c. 56) applies to it.
(6) In this section—
“double taxation relief arrangements” means arrangements which have effect under section 2(1) of TIOPA 2010;
“Malawi government pension” means a pension payable by the government of Malawi for services rendered—
to the government of Malawi, or
to the government of the Federation of Rhodesia and Nyasaland,
in the discharge of government functions;
“Trinidad and Tobago government pension” means a pension payable by the government of Trinidad and Tobago for services rendered to the government of Trinidad and Tobago in the discharge of governmental functions;
“Zambia government pension” means a pension payable by the government of Zambia for services rendered—
to the government of Zambia,
to the government of Northern Rhodesia, or
to the government of the Federation of Rhodesia and Nyasaland,
in the discharge of governmental functions.
(7) For the purposes of this section a person is the “original pensioner” in relation to a pension if—
(a) the pension is payable by virtue of the person’s service, and
(b) the person retired from that service before 6th April 1973.
644 Pensions payable where employment ceased due to disablement
(1) No liability to income tax arises on the exempt amount of a disablement pension.
(2) For the purposes of this section a pension is a “disablement pension” if—
(a) the pension is payable because a person has ceased to hold an employment or office because of disablement, and
(b) that disablement is attributable to—
(i) performance of the duties of the employment or office, or
(ii) war injuries.
But “disablement pension” does not include any pension to which section 579A applies.
(3) The exempt amount of a disablement pension is determined in accordance with the following steps.
Step 1
Determine what pension would have been payable if—
(a) the person had ceased to hold the employment or office because of the disablement mentioned in subsection (2)(a), but
(b) the disablement had not been attributable to—
(i) performance of the duties of the employment or office, or
(ii) war injuries.
Step 2
If no pension would have been payable, the exempt amount is the amount of the disablement pension.
If a pension of a smaller amount than the disablement pension would have been payable, the exempt amount is the amount by which the disablement pension exceeds the smaller amount.
In any other case, the exempt amount is nil.
(4) For the purposes of this section “office” includes in particular any position which has an existence independent of the person who holds it and may be filled by successive holders.
(1) No liability to income tax arises in respect of a pension or annuity payment if or to the extent that—
(a) were the payment an annual payment falling within Chapter 7 of Part 5 of ITTOIA 2005, it would be exempt from income tax under section 735 of that Act (health and employment insurance payments), and
(b) it meets conditions A and B.
(2) Condition A is that the payments are made—
(a) to a person (“the pensioner”) who made payments or contributions in respect of premiums under an insurance policy which another person took out wholly or partly for the pensioner's benefit, or
(b) to the pensioner's spouse or civil partner .
(3) Condition B is that the payments are attributable on a just and reasonable basis to the payments or contributions in respect of premiums.
645 Social security pensions: increases in respect of children
(1) No liability to income tax arises on a part of a social security pension which is attributable to an increase in respect of a child.
(2) In this section “social security pension” means—
(a) any pension, benefit or allowance to which section 577 applies, and
(b) any pension, benefit or allowance which—
(i) is payable under the law of a country or territory outside the United Kingdom, and
(ii) is substantially similar in character to a pension, benefit or allowance to which section 577 applies.