PSI17.2.59 - Tax Treatment of Approved Schemes and Payments by Approved Schemes: Taxation of Payments to Scheme Members – Pension Sharing on Divorce – Tax on Certain Commutation payments member with employee and pension credit rights

(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)

Where a member has both employee and pension credit rights in the same scheme and the scheme does not distinguish between the employee benefit and pension credit rights (see PSI24.1.7), the value of the fully commuted pension credit benefit is included with the fully commuted employee benefit for the purpose of calculating the section 599 tax liability in accordance with either

• PSI17.2.18 - for a member whose own benefits (ie the employee benefits and the pension credit benefit) are not, in themselves, affected by a pension sharing on divorce order, or
• PSI17.2.58 – for a member whose own benefits are subject to a pension sharing on divorce order.

A scheme can treat pension credit benefit rights separately from any employee benefits rights that the scheme might provide for the same member (see PSI24.1.7). In effect the same person has two simultaneous memberships of the same scheme - both an employee member and an ex- spouse member. Where this happens, the value of the fully commuted pension credit benefit is not included with the fully commuted employee benefit. A section 599 tax liability needs to be considered in respect of both fully commuted benefits. The liability in respect of the employee benefits is calculated in accordance with PSI17.2.18 or PSI17.2.58 as appropriate and PSI17.2.61 explains how the liability is calculated in respect of the pension credit benefit.