RPSM13102208 - Technical Pages: International: Application of charges to non-UK schemes: Member payment charges and taxable property unauthorised payment charge: Examples of determining if any unauthorised payments charge arises where lump sum paid

Examples of how to determine whether or not an unauthorised payments charge arises where lump sum paid from a relevant non-UK scheme

Example 1

Stephen receives all of his benefits from a relevant non-UK scheme in the form of a lifetime annuity costing £37,500 and a lump sum of £300,000 (which is paid within the 18 month period starting 6 months before and ending 12 months after the date of actual entitlement to the annuity). His UK tax-relieved scheme funds amount to £100,000. He has not previously used up any of his lifetime allowance.

As the purchase price of the lifetime annuity is £37,500 a maximum pension commencement lump sum of £12,500 (1/3rd of £37,500) is payable from his UK tax- relieved scheme funds. An unauthorised payment charge would arise on the amount of £50,000 by which the £62,500 lump sum attributable to his UK tax-relieved scheme funds (£100,000 - £37,500) exceeds the pension commencement lump sum (£12,500).

Example 2

On 2 August 2007 Beverley receives benefits from her relevant non-UK scheme in the form of a scheme pension of £3,750 pa and a lump sum of £25,000. Her UK tax-relieved scheme funds amount to £150,000. She has not previously used up any of her lifetime allowance.

The capital value of the pension benefits paid out is £75,000 (£3,750 x 20) so a maximum pension commencement lump sum of £25,000 (1/3rd of £75,000) is payable from her UK tax- relieved funds. There is no unauthorised payments charge as the lump sum attributable to her UK tax-relieved scheme funds (£25,000) is a pension commencement lump sum.

On 3 February 2008 Beverley receives a second tranche of benefits in the form of a scheme pension of £1,000 pa and a lump sum of £25,000. Her UK tax-relieved scheme funds amount to £50,000. Her unused amount of standard lifetime allowance is £1.5 million.

The capital value of the pension benefits paid out is £20,000 (£1,000 x 20) so a maximum pension commencement lump sum of £6,667 (1/3rd of £20,000) is payable from her UK tax- relieved funds. An unauthorised payment charge would arise on the amount of £18,333 by which the lump sum attributable to her UK tax-relieved scheme funds (£25,000) exceeds the pension commencement lump sum (£6,667).

Example 3

On 4 August 2007 Angela receives benefits from her relevant non-UK scheme in the form of a lump sum of £100,000. Her UK tax-relieved scheme funds amount to £150,000. As no relevant pension is paid there is no pension commencement lump sum so an unauthorised payments charge arises on the £100,000 payment which is wholly attributable to her UK tax- relieved scheme funds.

On 18 July 2008 Angela receives her remaining benefits as a lump sum of £250,000. Her UK tax-relieved scheme funds amount to £50,000. As no relevant pension is paid there is no pension commencement lump sum so an unauthorised payments charge arises on £50,000 which is the lump sum amount attributable to her UK tax-relieved scheme funds.