(This archived guidance relates to HMRC discretionary
practice before the 6th April 2006. For current guidance on
Registered Pension Schemes see the Registered Pension Schemes
Manual)
Tax under section 599 is charged at a rate of 20% on the
amount by which the commutation payment exceeds the maximum
allowable lump sum under the scheme rules (except the provisions
for entire commutation) when the triviality or serious ill health
lump sum was taken. Where the scheme rules provide for incapacity
benefits which take account of future notional service to normal
retirement date, that service may, where the circumstances justify
it, be taken into account in calculating this maximum lump sum. In
triviality commutation cases, any amounts which are otherwise non-
commutable under contracting-out requirements should be excluded
from the calculation of the maximum lump sum deductible.
Note
Where the member is not a moderate earner (see
PSI6.5.89) the pension debit
must be taken into account when calculating maximum lump sum
payable under the scheme rules (see
PSI10.1.31,
PSI10.1.32 or
PSI 10.2.9 as appropriate),
except where the scheme is a simplified defined contribution scheme
(see
PSI8.1.46).
Where the member is a moderate earner (see
PSI6.5.90) the pension debit
can be ignored when the maximum lump sum payable under the scheme
rules is calculated.
