Pension Schemes – Tax rate increases on pension schemes benefits

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By means of the Taxation of Pensions Schemes (Rates, etc) Order 2010, the Government has increased the rate of two tax charges applicable to pension schemes.

Short service refund lump sums

The first is to the tax charge on the payment of short service refund lump sums to pension scheme members who leave employment with less than two years’ service.

From 6 April 2010, the lump sum payment is subject to a tax charge of

• 20% in respect of the first £20,000 refunded, and
• 50% in respect of any refund made above £20,000.
• The tax deduction is made by the scheme administrator, not under PAYE.

Employer-financed retirement benefits schemes (EFRBS)

When “relevant benefits” are provided from EFRBS on retirement or death, income tax is charged at normal rates relevant to the recipient.  However if the benefits are paid to entities other than individuals, generally as a tax avoidance ploy to avoid the tax charge on the former employee, a fixed tax charge applies.  With effect from 6 April 2010, this charge is increased from 40% to 50%.

Further information:

Taxation of Pensions Schemes (Rates, etc) Order 2010

Explanatory Memorandum to the Taxation of Pensions Schemes (Rates, etc) Order 2010

This entry was posted on Friday, March 19th, 2010 at 11:35 and is filed under Pensions, retirement. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.