RPSM15106050 - Technical Pages: Special annual allowance: Becoming entitled to benefits or member dies: Example 2

This guidance only applies for the 2009-10 and 2010-11 tax years.

Test against special annual allowance where benefits taken: Example 2

Linda has a money purchase arrangement with a fund to which she has not made any contributions since 2005. On 1 July 2009 she pays a contribution of £300,000 and on 1 August 2009 she has arranged with the scheme to draw a pension commencement lump sum and designates the remainder of the fund as available to pay an unsecured pension.

There will be a test against the special annual allowance.

The amount of £300,000 gives rise to an adjusted pension input amount of £300,000, and there is no protected pension input amount to deduct. The special annual allowance in this instance is £20,000. The amount chargeable to the special annual allowance charge is therefore £280,000.

Linda will be liable to a special annual allowance charge of 20% of £280,000 = £56,000.

Note that there is no test against the annual allowance in this case (because it is set aside for the tax year in which all benefits are taken), despite the pension input amount exceeding the current annual allowance. However, the special annual allowance applies because the rule about setting aside the test for the tax year of taking benefits is more limited in relation to the special annual allowance.