Income Tax (Earnings and Pensions) Act 2003 section 574A

"Pension": relevant lump sums

Section 574A defines what counts as a "relevant lump sum" from certain pension schemes and sets out a three-step method for calculating the taxable pension income arising from such a lump sum.

• A lump sum from a pension scheme that is not a UK registered scheme, a relevant non-UK scheme, or a UK-established employer-financed retirement benefits scheme is a "relevant lump sum", provided it is not caught by the disguised remuneration rules.
• A lump sum from a relevant non-UK scheme is also a "relevant lump sum" where the specific member payment charging provisions in Schedule 34 to Finance Act 2004 do not apply to it, unless the lump sum relates to certain transfer members of such schemes.
• The taxable amount of a relevant lump sum is found by applying three sequential deduction steps: first removing any amount relating to commuted pension rights that are exempt under Chapter 17, then removing the value of pre-6 April 2017 accrued lump sum rights (with special foreign service rules for former employer-financed schemes), and finally removing any amount that would be free of income tax if the scheme were a UK registered pension scheme.
• HMRC has a regulation-making power to amend the assumptions used in the third step of the calculation.