RPSM04101090 - Technical Pages: Taxation: Authorised member payments: Short service refund lump sums

Taxation of short service refund lump sums

A short service refund lump sum (see RPSM09104700) triggers a free standing tax charge called the short service refund lump sum charge.

The person liable to the short service refund lump sum charge is the scheme administrator of the registered pension scheme making the payment. The tax charge applies whether or not the scheme administrator or the person receiving the short service refund lump sum is resident, ordinarily resident or domiciled in the UK.

The amount of tax due is

• 20% on the first £10,800 of the payment, and
• 40% of the remainder of the payment over £10,800.

Scheme administrators may deduct the tax they are liable to pay from the short service refund lump sum before making the payment to the member, where the rules of the scheme making the payment allow this. The tax charge applies to the amount of the lump sum before the deduction of the tax.

It is the scheme administrator who is liable to the tax charge and not the person who receives the lump sum payment. So if the recipient is a non-taxpayer they cannot make any repayment claim in respect of the tax paid. There is no further tax due for the person who receives the lump sum payment, even if they are a higher rate taxpayer. Also, the person receiving the payment cannot off-set the tax paid against any other taxable income.