A refund of excess contributions lump sum is not subject to any income tax charge. It is paid tax-free. This reflects the fact that no tax relief has been granted on the contributions being refunded in the first place.
The payment of a refund of excess contributions lump sum does not trigger a lifetime allowance test. So there will be no lifetime allowance charge on the payment.
Interest which forms part of the lump sum (see
RPSM09204130) is taxed as part of
the lump sum (see above).
Any interest paid in addition to the lump sum and which
qualifies as a
scheme administration member payment is taxable on
the member as income under section 369 Income tax (Trading and
Other Income) Act 2005 (formerly Case III Schedule D). This means
that the scheme will not deduct income tax from the interest before
paying it, and the member should declare the interest payment on
their Self Assessment return. If the member does not normally
complete a Self Assessment they must still inform HMRC of the
interest payment
If the payment does not qualify as a scheme administration
member payment or any of the other types of authorised member
payment, it is an unauthorised member payment for which the member
is liable to a tax charge.
RPSM04104000 deals with the taxation
of such payments.
| Glossary ( RPSM20000000) |
