RPSM04101140 - Technical Pages: Taxation: Authorised member payments: Taxation of trivial commutation, winding up and certain other small lump sums paid after death

Taxation of trivial commutation, winding up and certain other small lump sums paid after death

[s636B & 683 ITEPA 2003] [The Registered Pension Schemes (Authorised Payments) Regulations 2009 - SI 2009/1171

The following lump sums paid after death are taxable pension income in the tax year in which the payment is made

• a trivial commutation lump sum death benefit, see RPSM10105260,
• a winding up lump sum death benefit see RPSM10105510 or
• certain other small lump sum payments (see RPSM09105490)

The person liable to the tax is the person who receives the payment.

The taxable amount is the full amount of the lump sum payment.

As the payments are taxable as pension income the rate of tax is the lump sum recipient’s marginal rate of tax for the tax year in which the lump sum is paid. So if the individual is a basic rate taxpayer, the rate is 20%, if a higher rate taxpayer the rate is 40% and so on.

PAYE applies to these lump sum payments and the payer of the lump sum must operate PAYE on the lump sum payment in accordance with the PAYE rules before paying the lump sum.