Low rate cap on super lump sum benefits

Components of a super lump sum benefit

A super lump sum benefit can include a:

• taxable component, and
• tax-free component.

The taxable component is the part of the benefit that is taxable. Though tax must be paid on the entire taxable component, it may include two parts - one where tax has already been paid and one where tax has not yet been paid. These are called taxed and untaxed elements of the taxable component.

• A taxed element is the amount of your benefit that has already had tax paid within the fund. You may need to pay additional tax on it when it is paid out, depending on your age when you take the lump sum. You may need to include the taxed element in your tax return.
• An untaxed element is the part of your benefit that hasn't had any tax paid on it in the fund, but is still taxable. You must include it in your tax return.

The tax-free component is the part of a benefit that is tax-free and is not included in your tax return.