The guidance explains that, for most of the UK’s DTAs, lump sum and non-lump sum payments from a pension scheme are treated in the same way. Typically, this means that tax is payable only in the state in which the recipient is resident.   

However, for some DTAs, lump sum payments are treated as falling within the ‘other income’ article of the DTA, rather than the pensions article. Depending on the terms of DTA, this may mean that the lump sum is taxed in both the state in which it arose and the state in which the recipient is resident. Relief from double taxation is available under the treaty in the usual way (ie, foreign tax credit claim).  

HMRC says that, for these purposes: 

• a lump sum is “any non-periodic, irregular or abnormal payment of a pension”;
• in most cases” a payment of 20% or more of the fund is likely to be a lump sum and that it is “generally … safe to assume” that a payment that represents 50% or more of the fund is a lump sum;
• where a test payment is “clearly linked to another payment”, it is “reasonable to treat both payments in the same way”; and
• the nature of a payment will be decided on the “facts and circumstances” where a person has complete control over their pension. HMRC will take a number of considerations into account, including whether:
  • the payment has some regularity to it; and
  • if it is significantly different to the usual payments made.

 The guidance also provides specific comments in relation to the position under the UK/US DTA as the US regards the lump sum provision of the DTA to be an anti-avoidance measure. 

ICAEW had called for HMRC to publish guidance on this issue through the now disbanded joint forum on expatriate tax and national insurance contributions.