RPSM03105201 - Technical Pages: Protecting pension rights from tax charges: Lump sums: Enhanced protection: Lump sum paid before notification

Lump sums paid after 5 April 2006 but before the individual notifies HMRC of their reliance on enhanced protection

A valid notification for enhanced protection coupled with lump sum rights exceeding £375,000 modifies an individual’s authorised lump sum benefits i.e. the amount that they may receive as a pension commencement lump sum at any time after 5 April 2006.

A valid notification for enhanced protection modifies the amount receivable not just for lump sum benefits paid after the claim for enhanced protection was made but also for any lump sum benefits paid after 5 April 2006 and before the date of the claim.

For instance a valid notification for enhanced protection in January 2009 which sets a percentage of 20% for lump sum benefits will apply that percentage to any lump sum benefits paid in the period 6 April 2006 to January 2009. This means that a lump sum benefit of 25% paid in March 2007 will not wholly be an authorised payment due to the subsequent notification for enhanced protection. That part of the lump sum paid up to the 20% limit will be an authorised payment (a pension commencement lump sum). The rest of the lump sum will be an unauthorised member payment and the recipient will be liable to tax at 40%.