Finance Act 2004

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 lifetime allowance is available [F3 (but see sub-paragraph (3A))],

(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-paragraphs (4) and (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) In a case where—

(a) the member becomes entitled to a lump sum before reaching the age of 75, but

(b) it is not paid to the member until after the member has reached that age,

the reference in sub-paragraph (1)(b) to the lump sum being paid is to be read as a reference to the member becoming entitled to it.]

(4) A lump sum is an excluded lump sum if—

(a) the pension in connection with which the member becomes entitled to it is a scheme pension the rate of which is to reduce (or which is to cease to be payable) in accordance with paragraph 2(4)(c) of Schedule 28 F10 ..., and

(b) the sole or main purpose of making provision for the pension to be such a pension was to increase the member’s entitlement to a lump sum on which there is no liability to income tax.

[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) The Board of Inland Revenue may by regulations provide that, where incorrect income tax has been paid by the scheme administrator in relation to the member by way of the lifetime allowance charge in circumstances prescribed by the regulations, a lump sum subsequently paid to the member in circumstances so prescribed is to be treated as a pension commencement lump sum [F13 even though the condition in sub-paragraph (1)(c) is not met.]]

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) inserted (with effect in accordance with Sch. 16 paras. 85, 101 of the amending Act) by Finance Act 2011 (c. 11), Sch. 16 para. 24(2)(b)

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 (1.8.2022) by Finance Act 2021 (c. 26), Sch. 5 paras. 21(2)(a), 25(1); S.I. 2022/874, reg. 2

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) inserted (with effect in accordance with Sch. 16 paras. 85, 101 of the amending Act) by Finance Act 2011 (c. 11), Sch. 16 para. 24(3)

F10 Words in Sch. 29 para. 1(4)(a) omitted (with effect in accordance with s. 51(5) of the amending Act) by virtue of Finance Act 2013 (c. 29), s. 51(3)

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) inserted (6.4.2006) by Finance Act 2005 (c. 7), Sch. 10 paras. 34(3), 64(1)

F13 Words in Sch. 29 para. 1(6) substituted (with effect in accordance with Sch. 16 paras. 85, 101 of the amending Act) by Finance Act 2011 (c. 11), Sch. 16 para. 24(4)

Modifications etc. (not altering text)

C1 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

C2 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)

C3 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

C4 Sch. 29 para. 1 modified (27.7.2010) by Finance (No. 2) Act 2010 (c. 31), Sch. 3 para. 7

C5 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