RPSM09104185 - Technical Pages: Member benefits: Lump sums: Pension commencement lump sum: Overpaid lifetime allowance charge

If the lump sum was paid on or after 6 April 2011 you should first read RPSM09104195 

A pension commencement lump sum can be paid from an overpaid lifetime allowance charge reclaimed from HMRC

[The Registered Pension Schemes (Meaning of Pension Commencement Lump Sum) Regulations 2006 - SI 2006/135 as amended by SI 2007/3533]

Where a scheme administrator has made a payment of lifetime allowance charge in respect of a member and it is later found that there was an overpayment of the charge, the scheme administrator can reclaim the overpayment back from HMRC.

When HMRC refunds the overpaid lifetime allowance charge back to the scheme administrator, the scheme administrator may use part or all of the refund to pay a further lump sum. If the scheme administrator pays the lump sum within 12 months of the day it receives the refund of the overpaid lifetime allowance charge from HMRC, it can be treated as a pension commencement lump sum for tax purposes.

The lump sum can be treated as a pension commencement lump sum even if the payment is made outside the normal period for a pension commencement lump sum, that is the 18-month period starting 6 months before and ending 12 months after the entitlement arising to the connected scheme pension/ lifetime annuity/ unsecured pension.

The other pension commencement lump sum conditions must of course also be satisfied; e.g. there is a maximum that can be treated as a pension commencement lump sum (see RPSM09104200).