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

Trivial commutation lump sums and winding-up lump sums

Section 637G explains how trivial commutation lump sums and winding-up lump sums from registered pension schemes are taxed, and how a tax-free element may reduce the taxable amount where the member had uncrystallised pension rights.

• Trivial commutation lump sums and winding-up lump sums paid from a registered pension scheme are treated as taxable pension income in the year of payment
• Where the member had uncrystallised rights under the pension scheme immediately before the lump sum was paid, the taxable amount is reduced by a tax-free element
• The tax-free element is 25% of the value of any uncrystallised rights that are extinguished by the lump sum payment
• Uncrystallised rights are valued in accordance with section 212 of the Finance Act 2004