Guidance

Newsletter 173 — September 2025

Published 25 September 2025

1. Returning tax free lump sums

1.1 HMRC statement

Tax treatment of tax-free lump sums paid back into a registered pension scheme

Following the article in pension schemes newsletter 165 — December 2024 on the tax treatment of tax-free lump sums paid back into a registered pension scheme, and requests for further detail on our position, we are now issuing a statement in parallel with the Financial Conduct Authority (FCA) which sets out the interactions between cancellation rights and the tax treatment.

Tax treatment of cancellation rights

If an action has resulted in a tax consequence, and an attempt is made to reverse the action, normally the resulting tax consequences cannot be reversed. The tax consequences will normally stand.

Where a transaction falls within the FCA rules that require a cancellation right to be provided then the tax consequences can be reversed, for example the cancellation within 30 days of a contract to transfer a pension. This reversal is limited to actions that are expressly referred to in the FCA rules.

Under the FCA’s Conduct of Business Sourcebook (COBS) 15.2.1 rules, a cancellation right arises when a consumer enters into certain specified contracts. Where cancellation rights arise in respect of these contracts, there will be no tax consequences for the consumer who exercises that right, but only with regard to the transactions that fall within the scope of the rules set out in the FCA’s Conduct of Business Sourcebook 15.2.1.

As a contract allowing a person to take a pension commencement lump sum or uncrystallised funds pension lump sum is not listed as a cancellable contract in COBS 15.2, cancellation rights do not arise with regard to paying these lump sums. Once lump sums are paid, the associated tax consequences (including the use of the individual’s lump sum allowance and lump sum death benefit allowance) cannot be undone, even if the payment is returned or cancellation rights are exercised.

This does not prevent a registered pension scheme from offering cancellation rights for the lump sum elements of cancellable contracts. However, where registered pension schemes choose to do so, it is essential that they ensure customers understand that, once paid, the tax consequences of these lump sums (including any use of the individual’s lump sum allowance and lump sum death benefit allowance) will not be reversed, even if the payment is subsequently returned or cancelled. This includes where the exercise of a cancellation right under FCA’s COBS 15.2 has the effect of cancelling the entire contract, including the pension commencement lump sum or uncrystallised funds pension lump sum, or where schemes voluntarily choose to offer cancellation rights for pension commencement lump sum or uncrystallised funds pension lump sum.

The conditions as set out in tax legislation will need to be met in order for the pension commencement lump sum or uncrystallised funds pension lump sum to remain an authorised payment if cancellation rights are chosen to be provided and those rights are exercised.

Check the conditions for a pension commencement lump sum.

Check the conditions for an uncrystallised funds lump sum.

Registered pension schemes should therefore take care to ensure that appropriate arrangements are in place to mitigate any adverse tax outcomes.

When offering cancellation rights, registered pension schemes should continue to ensure that members are aware of the tax consequences if those rights are exercised.

Thank you for the feedback received on this to date.

2. Qualifying recognised overseas pension schemes

2.1 APSS262 form

In pension schemes newsletter 170 — May 2025 we told you we would be introducing a new feature later in the year that will allow you to report a transfer to a qualifying recognised overseas pension scheme (QROPS) on the managing pension schemes service. This will replace the current APSS262 form.

If your pension scheme has a Pension Scheme Tax Reference (PSTR) beginning with 0, and you have not already done so, you will need to migrate your pension schemes to the managing pension schemes service to use this functionality.

2.2 User research

We are inviting pension scheme administrators and pension scheme practitioners to take part in user research to support the next stage of the ‘Report a transfer to a QROPS’ project. The purpose of these sessions is to gather feedback on the new digital service which will replace the APSS262 form. Your insights will help us make sure the service meets the needs of the people who use them.

By joining the research panel, you may be invited to:

• take part in short surveys, interviews, or usability tests
• provide feedback on how the service and guidance content is presented
• contribute to improvements that make it easier to meet your obligations

You can choose which activities you wish to be involved in. Please email laura.klonowska@digital.hmrc.gov.uk to sign up.

3. Abolition of the lifetime allowance update

As part of our ongoing commitment to ensuring that legislation concerning the abolition of the lifetime allowance continues to function as effectively as intended, we are preparing some further minor technical amendments to the legislation.

These changes are designed to clarify certain provisions, correct minor drafting inconsistencies and support smoother implementation. Whilst important, they will not affect the vast majority of pension savers.

The regulations will be made in early 2026 and, when introduced, will have retrospective effect from 6 April 2024.

The key amendments will ensure:

• lump sums paid from an overseas pension scheme to a UK resident (that are equivalent to a lump sum paid from a registered pension scheme that would be tax-free or have a tax-free element) continue to be treated similarly to such payments
• the valuation of a member’s relevant crystallised pension rights for trivial commutation lump sums is consistent with the rules in place prior to April 2024
• the calculation for individuals with scheme-specific pension commencement lump sum operates as intended
• provisions are put in place for stand-alone lump sum values to be transferred to a receiving scheme
• the treatment of enhancement factors is consistent with the rules in place prior to April 2024
• drafting inconsistencies are corrected

There may be further minor changes following consultation with industry, which will take place later this year.

We will share instructions on how to provide feedback on the draft regulations in future newsletters.

4. Pension scheme return — submission deadline reminder

From the 2024 to 2025 tax year onwards, returns must be submitted via the managing pension schemes service.

If you have not yet migrated your pension schemes to the managing pension schemes service, you need to do so now. Here is a short video explaining how to enrol and migrate.

4.1 Who needs to complete a pension scheme return

You’ll only need to submit a pension scheme return if we have issued a notice to file. Even if you have not previously received a notice to file a pension scheme return, you might in the future.

If you’re an administrator for more than one scheme, you may now have to complete a return for each scheme you manage.

4.2 Deadline for submitting a pension scheme return

You must submit your pension scheme return for each tax year by 31 January after the end of the tax year. If it’s not received by the deadline, you’ll be charged a £100 penalty.

Daily penalties of up to £60 a day may also be charged.

For the 2024 to 2025 tax year, if you migrated your scheme before April 2025, your pension scheme return must be submitted by 31 January 2026.

If you migrate your scheme after 31 October 2025, notices to file for the 2024 to 2025 tax year will have a filing deadline of 3 months from the date of issue.

If you further delay migrating your schemes, notices to file for any applicable years will automatically be issued for all years from the 2024 to 2025 tax year.

For further guidance see submit a pension scheme return using the managing pension schemes service.

5. Relief at source

5.1 Annual return of information

The deadline for submitting your annual return of information and APSS590 declaration for the 2024 to 2025 tax year to HMRC has passed. However, there are still returns outstanding from scheme administrators who have submitted interim repayment claims in 2025 to 2026.

If a 2024 to 2025 annual return of information was due for your scheme and is still outstanding, any subsequent interim repayments will be withheld until we receive both the:

• outstanding return
• APSS590 declaration

We want to remind pension scheme administrators that it’s important to use the right naming convention when submitting an annual return of information for 2024 to 2025. Using the wrong references on either the file name or within the annual return itself will mean our systems will reject your submission and you’ll have to resubmit the return.

You can find details of how you should name your files in the:

• relief at source spreadsheet
• electronic flat text file specifications