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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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The taxation of pension income: Pensions taken as flexible drawdown: temporary non-residence: section 579CA example

Mr Smollett, who is aged 56 (so has reached normal minimum pension age) and has lived all his life in the UK, leaves the UK on 5 August 2011 for a three year contract of employment abroad.

He resumes tax residence in the UK on 2 September 2014.

He is paid £100,000 as a tax-free pension commencement lump sum and £300,000 in flexible drawdown from his UK registered pension scheme on 20 April 2012. As he is not resident in the UK for tax year 2012-13, in accordance with the terms of the double taxation agreement between the UK and the country in which Mr Smollett is resident at the time, no income tax is deducted or due in respect of the £300,000 paid as flexible drawdown (see EIM74403).

Mr Smollett fulfils all the conditions in s.579CA ITEPA.

  • He has resumed UK tax residence (2014-15 is the year of return (S.579CA(2)(a))
  • There is at least one tax year immediately prior to the year of return when he was not tax resident in the UK (the intervening years: 2012-13 and 2013-14) and immediately prior to that there are earlier tax years of UK residence (all those to 2011-2012 inclusive (S.579CA(2)(b)).
  • The intervening years are less than five full tax years (S.579CA(2)(c))
  • His year of departure is 2011-12 and he had been resident in the UK for at least four out of the seven tax years immediately prior to his year of departure (in this example he was resident for all of the previous tax years) (S.579CA(2)(d)).

The flexible drawdown was paid in a year of non-residence (not in the year of departure or year of return) and is not, apart from S.579CA, otherwise chargeable to tax under Part 9 ITEPA. In this example Mr Smollett will be chargeable under Section 579CA in the tax year of return to UK residence (2014-15) on the £300,000 paid as flexible drawdown.