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The tax code operated on trivial commutation and similar one-off lump-sum pension payments will change in April 2013 from emergency to the basic rate also operated on the non-cumulative basis.
HMRC hope the change will result in more individuals, in particular those on low and moderate incomes, paying the right amount of tax at the time a payment is made.
Trivial commutation and similar one-off lump-sum pension payouts include:
- trivial commutation lump sums;
- trivial commutation lump-sum death benefits;
- winding up lump sums;
- winding up lump-sum death benefits;
- commuted equivalent pension benefits;
- certain small lump-sum payments; and
- small pot commutations.
A maximum of 25% of the value of most types can be converted to a tax-free lump sum, subject to conditions. The code is then applied to the remaining taxable portion of the amount.
Draft legislation and a technical note relating to PAYE and real-time information changes are available for comment until 11 January 2013.
The Revenue has confirmed that the P53 form and process used to claim overpaid tax will continue to exist in its present form, although the department intends to improve both.
