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Finance (No. 2) Act 2005

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7Charge to income tax on lump sumE+W+S+N.I.

(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 [F1Step 3 income] for the applicable year of assessment is nil, 0%;

F2(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c)if P's [F1Step 3 income] for that year of assessment [F3is greater than nil] but does not exceed the basic rate limit for that year, the basic rate for that year;

(d)if P's [F1Step 3 income] for that year of assessment exceeds the basic rate limit for that year [F4but does not exceed the higher rate limit for that year], the higher rate for that year.

[F5(e)if P's Step 3 income for that year of assessment exceeds the higher rate limit for that year, the additional 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.

[F6(9) For the purposes of this section P's “ Step 3 income ” means P's net income less allowances deducted at Step 3 of the calculation in section 23 of ITA 2007 (calculation of income tax liability). ]

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Amendments (Textual)

F1Words in s. 7(5) substituted (6.4.2007) by Income Tax Act 2007 (c. 3), s. 1034(1), Sch. 1 para. 604(2) (with Sch. 2)

F2S. 7(5)(b) omitted (with effect in accordance with Sch. 1 para. 65 of the commencing Act) by virtue of Finance Act 2008 (c. 9), Sch. 1 para. 64(a)

F3Words in s. 7(5)(c) substituted (with effect in accordance with Sch. 1 para. 65 of the commencing Act) by Finance Act 2008 (c. 9), Sch. 1 para. 64(b)

F4Words in s. 7(5)(d) inserted (with effect in accordance with Sch. 2 para. 25 of the commencing Act) by Finance Act 2009 (c. 10), Sch. 2 para. 24(a)

F5S. 7(5)(e) inserted (with effect in accordance with Sch. 2 para. 25 of the commencing Act) by Finance Act 2009 (c. 10), Sch. 2 para. 24(b)

F6S. 7(9) inserted (6.4.2007) by Income Tax Act 2007 (c. 3), s. 1034(1), Sch. 1 para. 604(3) (with Sch. 2)

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