Income Tax (Earnings and Pensions) Act 2003 section 637E

Short service refund lump sum

Section 637E confirms the tax treatment of a short service refund lump sum paid from a registered pension scheme, directing that tax is charged on the scheme administrator rather than on the individual member.

• A short service refund lump sum is a repayment of contributions to a member who leaves a pension scheme after only a short period of service.
• When such a lump sum is paid from a registered pension scheme, it is subject to income tax under section 205 of the Finance Act 2004.
• The tax charge falls on the scheme administrator, not on the individual receiving the payment.
• No other income tax charge applies to the member in respect of this lump sum — it is not taxed again through PAYE or self-assessment.