General principles: overview of pensions taxation: taxation of pension income payments
Sections 579A to 579D and 683(3) Income Tax (Earnings and Pensions) Act 2003
Pension income from a registered pension scheme is taxable on the amount that accrues in a tax year. A pension from a registered pension scheme includes (for both members and beneficiaries):
- a scheme pension
- a lifetime annuity
- a short-term annuity, and
- income withdrawal.
Certain other payments to members from registered pension schemes are taxable as pension income, either in whole or in part:
- an uncrystallised funds pension lump sum
- a trivial commutation lump sum
- a winding-up lump sum, and
- small pots lump sums.
Any unauthorised pension paid under a registered pension scheme will also be chargeable to income tax as pension income unless the unauthorised pension has been assessed as liable to the unauthorised payments charge. For more details about the unauthorised payments charge see PTM134000.
The person receiving or entitled to receive the pension income is liable to tax on the income. PAYE applies to all pensions paid from registered pension schemes. The payer of the pension must operate PAYE in accordance with the PAYE rules before paying the pension.
There is no general exemption to income tax for non-UK residents receiving a pension from a UK registered pension scheme. However, exemption at source may be available under a double taxation agreement. The lifetime allowance charge (see PTM083000) and the unauthorised payments charge (see PTM134000) may also be relevant in certain circumstances.
Detailed guidance on the taxation of pension income can be found in the Employment Income Manual from EIM74000.