Revenue Note for Guidance

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Revenue Note for Guidance

787RA Credit for tax paid on an excess lump sum

Summary

This section provides that where tax at the standard rate arises on a lump sum paid to an individual under a pension arrangement (lump sum tax) and tax also arises on a chargeable excess in relation to that individual (chargeable excess tax) the pension scheme administrator is required to offset the lump sum tax against the chargeable excess tax.

Details

(1) Where, on or after 1 January 2011, a benefit crystallisation event (BCE) occurs in respect of an individual, including an individual in respect of whose retirement benefits a PAO has been made, which gives rise to tax on a chargeable excess (i.e. where the BCE on its own or when aggregated with prior BCEs exceeds the standard fund threshold or the individual’s personal fund threshold) and where income tax under Case IV of Schedule D has been charged at the standard rate on a lump sum paid to the individual on or after that date in accordance with section 790AA(3)(a)(i) or (3)(b)(i)(I), the amount of chargeable excess tax (or the appropriate share of that tax in the case of an individual in respect of whose retirement benefits a PAO has been made) which the administrator must account for is reduced by the amount of the lump sum tax to the extent that the lump sum tax hasn’t been repaid or previously credited against chargeable excess tax.

(1)(a) & (b) The lump sum tax to be credited may have been charged by the administrator of the pension arrangement giving rise to the BCE in respect of a lump sum paid under that pension arrangement or in respect of a lump sum paid under another pension arrangement of the individual administered by that administrator or, where the conditions set out in subsection (2) are met, have been charged in respect of a lump sum paid under a pension arrangement of the individual administered by a different administrator. Where lump sum tax arises in relation to lumps sums paid under a number of pension arrangements the tax can be aggregated for the purposes of crediting it against the chargeable excess tax.

(2) The administrator of a pension arrangement can only allow a credit against chargeable excess tax for lump sum tax deducted by another administrator if that administrator obtains a certificate from the other administrator stating –

  1. the name and address of the administrator,
  2. the individual’s name, address and PPS Number,
  3. the relevant pension arrangement in respect of which the BCE giving rise to the excess lump sum arose,
  4. the amount and date of payment of the lump sum
  5. the amount of tax deducted from the lump sum in accordance with subsection (3)(a)(i) or (3)(b)(i)(I) of section 790AA (i.e. at the standard rate under Case IV of Schedule D) and remitted to the Collector-General.

(3) Where the amount of the lump sum tax to be credited exceeds the chargeable excess tax or, where relevant, the appropriate share of that tax, the balance can be carried forward and used against chargeable excess tax arising on future BCEs occurring in relation to the individual. This balance is added to any lump sum tax arising on the future BCE (if a lump sum were to be paid under that BCE). This process can continue until the lump sum tax balance is fully used.

(4), (5) & (6) Where a future BCE involves a different administrator then that administrator must obtain a certificate from the previous administrator stating what lump sum balance remains. The balance can be added to lump sum tax arising on that BCE, if any, and used to reduce chargeable excess tax arising on the BCE, and so on.

(7) Certificates obtained under subsection (2) or subsection (4) must be retained by the administrator for a period of 6 years and be produced to Revenue if requested.

(8) Any lump sum tax (or balance) may only be used once to reduce tax (or the appropriate share of tax) on a chargeable excess and for no other purpose.

(9) The provisions of this section, with any necessary modifications, also apply to a nonmember spouse or civil partner, which means that a non-member who pays excess lump sum tax can have it set off against his or her appropriate share of the chargeable excess tax.

Relevant Date: Finance Act 2019