Income Tax (Earnings and Pensions) Act 2003 (c. 1)

(The document as of February, 2008)

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(4) The entitlement to a deduction under this section is subject to sections 556 and 557.

(5) For the application of this Part in relation to former office-holders, see section 564.

(6) For relief from capital gains tax where the amount of the deduction allowed under this section exceeds total income, see section 263ZA of TCGA 1992.

556 Deductible payments made outside the time limits allowed

(1) No deduction may be made under section 555 if the deductible payment is made--

(a) on or before the day on which the former employee ceased to hold the former employment, or

(b) after the end of the sixth tax year following the tax year in which the former employee ceased to hold the former employment.

(2) If subsection (1)(a) applies, see section 346 (deduction for employee liabilities).

557 Deductible payments wholly or partly borne by the former employer etc.

(1) This section applies if--

(a) a deductible payment is made by the former employee (and not by the former employer on behalf of the former employee), but

(b) the whole or a part of the cost of making the payment is borne--

(i) by the former employer, or

(ii) out of the proceeds of a contract of insurance.

(2) No deduction of the amount of the cost borne as mentioned in subsection (1)(b) (the "relevant amount") may be made under section 555.

(3) But this is subject to subsection (4) if the whole or a part of the relevant amount is treated--

(a) as a relevant retirement benefit of the former employee, or

(b) as post-employment earnings of the former employee.

(4) In such a case, a deduction of so much of the relevant amount as is treated in that way may be made under section 555.

Interpretation

558 Meaning of "deductible payment"

(1) For the purposes of this Part each of the following is a deductible payment--

A. Payment in or towards the discharge of a liability related to the former employment.

B. Payment of any costs or expenses incurred in connection with--

(a)

a claim that the former employee is subject to a liability related to the former employment, or

(b)

proceedings relating to or arising out of a claim that the former employee is subject to a liability related to the former employment.

C. Payment of a premium under a qualifying insurance contract, but only to the extent that the premium relates to--

(a)

provision in the contract for the former employee to be indemnified against a payment falling within paragraph A, or

(b)

provision in the contract for the payment of any costs or expenses falling within paragraph B.

(2) But a payment which falls within paragraph A or B is not a deductible payment if it would have been unlawful for the former employer to enter into a contract of insurance in respect of the liability, or costs or expenses, in question.

(3) In this Part--

(a) "premium", in relation to a qualifying insurance contract, means an amount payable to the insurer under the contract, and

(b) where a qualifying insurance contract relates to more than one person, employment or risk, the part of the premium to be treated as relating to each of them is to be determined by apportionment on a just and reasonable basis.

559 Liabilities related to the former employment

For the purposes of this Part each of the following kinds of liability is related to the former employment--

A. Liability imposed upon the former employee because he did an act, or failed to do an act--

(a)

in his capacity as holder of the former employment, or

(b)

in any other capacity in which he acted in the performance of the duties of the former employment.

B. Liability imposed upon the former employee in connection with any proceedings relating to, or arising from, a claim that he is subject to a liability because he did an act, or failed to do an act--

(a)

in his capacity as holder of the former employment, or

(b)

in any other capacity in which he acted in the performance of the duties of the former employment.

560 Meaning of "qualifying insurance contract"

(1) In section 558 "qualifying insurance contract" means a contract of insurance which meets conditions A, B, C and D.

(2) Condition A is that, so far as the risks insured against are concerned, the contract only relates to one or more of the following--

(a) the indemnification of a former employee against a liability related to the former employment,

(b) the indemnification of a person against vicarious liability in respect of a liability related to another person's employment,

(i) in connection with a claim that a person is subject to a liability to which the insurance relates, or

(ii) in connection with any proceedings relating to or arising out of a claim that a person is subject to a liability to which the insurance relates,

(d) the indemnification of an employer against loss from a payment made by the employer to a former employee in respect of--

(i) a liability related to the former employment, or

(ii) any costs or expenses incurred as mentioned in paragraph (c).

(3) Condition B is that--

(a) the period of insurance under the contract does not exceed 2 years or, if it does, it does so only because of one or more renewals, each for a period of 2 years or less, and

(b) the insured is not required to renew the contract for any period.

(4) Condition C is--

(a) that the insured is not entitled under the contract to receive any payment or other benefit in addition to--

(i) cover for the risks insured against, and

(ii) any right to renew the contract, or

(b) if the insured is so entitled, that the part of the premium reasonably attributable to the entitlement is not a significant part of the whole premium.

(5) Condition D is that the contract is not connected with another contract.

561 Connected contracts

(1) An insurance contract is connected with another contract for the purposes of section 560 if conditions E and F are met--

(a) at the time when both contracts are first in force, or

(b) at any time after that time.

(2) Condition E is that one of the contracts was entered into--

(a) by reference to the other, or

(b) with a view to enabling or facilitating entry into the other on particular terms.

(3) Condition F is that the terms on which one of the contracts was entered into are significantly different from what they would have been if--

(a) it had not been entered into in anticipation of the other being entered into, or

(b) the other had not also been entered into.

(4) If--

(a) there is only one such significant difference in terms, and

(b) the contracts meet conditions A, B and C specified in section 560,

the difference may be disregarded in the following cases.

(5) The first case is where the difference is a reduction in premiums under the contract that is reasonably attributable only to the contract--

(a) containing a right to renew, or

(b) being entered into by way of renewal.

(6) The second case is where--

(a) two or more contracts have been entered into as part of a single transaction, and

(b) the difference is reductions in their premiums that are reasonably attributable only to the premium under each of them having been fixed by reference to the appropriate proportion of the combined premium.

(7) In subsection (6) "the combined premium" means the amount that would have been the total premium under a single contract relating to all the risks covered by the contracts.

562 Meaning of "former employee" and "employment"

(1) In this Part "former employee" means an individual who has ceased to hold an employment.

(2) In this Part "employment" includes in particular--

(a) any employment under a contract of service,

(b) any employment under a contract of apprenticeship, and

"Employee" and "employer" have corresponding meanings.

563 Other interpretation

In this Part each of the following expressions, when used in relation to a former employee, has the meaning given--

"former employment" means the employment which the former employee has ceased to hold;
"former employer" means--
(a)
the person under whom the former employee held the former employment,
(b)
a person for the time being carrying on the whole or any part of the business or other undertaking for the purposes of which the former employee held the former employment,
(c)
a person who is for the time being subject to any of the liabilities with respect to that business or other undertaking of the person mentioned in paragraph (a), and
(d)
a person who is connected with a person falling within paragraph (a), (b) or (c);
"post-employment earnings" means so much of any amount received after the former employee has ceased to hold the former employment as constitutes general earnings for the purposes of the employment income Parts;
"relevant retirement benefit" means a benefit--
(a)
which is received by the former employee under a retirement benefits scheme of which he is a member in respect of the former employment, and
(b)
which, under Chapter 2 of Part 6 (benefits from non-approved pension schemes), counts as employment income of the former employee.

564 Application of this Part to office-holders

(1) The provisions of this Part are expressed to apply to former employees but they apply equally to former office-holders.

(2) In those provisions as they apply to a former office-holder--

(a) references to holding a former employment are to holding the office;

(b) "former employment" means the office held;

(3) In this Part "office" includes in particular any position which has an existence independent of the person who holds it and may be filled by successive holders.

Part 9 Pension income

Chapter 1 Introduction

565 Structure of Part 9

The structure of this Part is as follows--

Chapter 2--

(a)

imposes the charge to tax on pension income, and

(b)

provides for deductions to be made from the amount of income chargeable;

Chapters 3 to 15 set out the types of income which are charged to tax under this Part and, for each type of income, identify--

(a)

the amount of income chargeable to tax for a tax year, and

(b)

the person liable to pay any tax charged;

Chapters 16 to 18 deal with exemptions from the charge to tax (whether under this Part or any other provision).

Chapter 2 Tax on pension income

566 Nature of charge to tax on pension income and relevant definitions

(1) The charge to tax on pension income under this Part is a charge to tax on that income excluding any exempt income.

(2) "Pension income" means the pensions, annuities and income of other types to which the provisions listed in subsection (4) apply.

This definition applies for the purposes of the Tax Acts.

(3) "Exempt income" means pension income on which no liability to income tax arises as a result of any provision of Chapters 16 to 18 of this Part.

This definition applies for the purposes of this Part.

(4) These are the provisions referred to in subsection (2)--

Provision	Income	Chapter (of this Part)
Section 569	United Kingdom pensions	Chapter 3
Section 573	Foreign pensions	Chapter 4
Section 577	United Kingdom social security pensions	Chapter 5
Section 580	Pensions or annuities from approved retirement benefits schemes	Chapter 6
Section 583	Unauthorised payments from-- (a) approved retirement benefits schemes, or (b) former approved superannuation funds (see section 593)	Chapter 6
Section 590	Annuities paid under former approved superannuation funds	Chapter 7
Section 595	Annuities from approved personal pension schemes	Chapter 8
Section 598	Income withdrawals under approved personal pension arrangements	Chapter 8
Section 601	Unauthorised personal pension payments	Chapter 8
Section 605	Annuities under retirement annuity contracts	Chapter 9
Section 609	Annuities for the benefit of dependants	Chapter 10
Section 610	Annuities under sponsored superannuation schemes	Chapter 10
Section 611	Annuities in recognition of another's services	Chapter 10
Section 615	Certain overseas government pensions paid in the United Kingdom	Chapter 11
Section 619	The House of Commons Members' Fund	Chapter 12
Section 623	Return of surplus employee additional voluntary contributions	Chapter 13
Section 629	Pre-1973 pensions paid under OPA 1973	Chapter 14
Section 633	Voluntary annual payments	Chapter 15

567 Amount charged to tax

(1) The amount of pension income which is charged to tax under this Part for a particular tax year is as follows.

(2) In relation to each pension, annuity or other item of pension income, the amount charged to tax is the "net taxable pension income" for the tax year.

(3) The net taxable pension income for a pension, annuity or other item of pension income for a tax year is given by the formula--

TPI - DPI

where--

TPI means the amount of taxable pension income for that pension, annuity or item of pension income for that year (see subsection (4)), and
DPI means the total amount of any deductions allowed from the pension, annuity or item of pension income (see subsection (5)).

(4) For the purposes of this Act--

(a) the amount of taxable pension income for a pension, annuity or other item of pension income for a tax year is determined in accordance with Chapters 3 to 15 of this Part (which contain provisions relating to this amount for each type of pension income); and

(b) in determining the amount of taxable pension income for a pension, annuity or other item of pension income, any exempt income is to be excluded.

(5) The deductions allowed from a pension, annuity or other item of pension income are those under--

section 617 (10% deduction from an overseas government pension to which section 615 applies);
Part 12 (payroll giving).

568 Person liable for tax

For the provision identifying which person is liable for any tax charged under this Part on a pension, annuity or other item of pension income, see Chapters 3 to 15.

Chapter 3 United Kingdom pensions: general rules

569 United Kingdom pensions

(1) This section applies to any pension paid by or on behalf of a person who is in the United Kingdom.

(2) But this section does not apply to a pension if any provision of Chapters 5 to 14 of this Part applies to it.

(3) For pensions paid by or on behalf of a person who is outside the United Kingdom, see Chapter 4 of this Part.

570 "Pension": interpretation

In this Chapter "pension" includes a pension which is paid voluntarily or is capable of being discontinued.

571 Taxable pension income

If section 569 applies, the taxable pension income for a tax year is the full amount of the pension accruing in that year irrespective of when any amount is actually paid.

572 Person liable for tax

If section 569 applies, the person liable for any tax charged under this Part is the person receiving or entitled to the pension.

Chapter 4 Foreign pensions: general rules

573 Foreign pensions

(1) This section applies to any pension paid by or on behalf of a person who is outside the United Kingdom to a person who is resident in the United Kingdom.

(2) But this section does not apply to a pension if any provision of Chapters 5 to 14 of this Part applies to it.

(3) For pensions paid by or on behalf of a person who is in the United Kingdom, see Chapter 3 of this Part.

574 "Pension": interpretation

(1) For the purposes of this Chapter "pension" includes a pension which is paid voluntarily, or is capable of being discontinued, if conditions A and B are met.

(2) Condition A is that the pension is paid to--

(a) a former employee or a former office-holder,

(b) the widow or widower of a former employee or a former office-holder, or

(3) Condition B is that the pension is paid by or on behalf of--

(a) the person--

(i) who employed the former employee, or

(ii) under whom the former office-holder held the office, or

(b) the successors of that person.

(4) In this section "office" includes in particular any position which has an existence independent of the person who holds it and may be filled by successive holders.

575 Taxable pension income

(1) If section 573 applies, the taxable pension income for a tax year is the amount on which tax would be chargeable if the pension were charged to tax under Case V of Schedule D for that year (see in particular the provisions of ICTA listed in subsection (2)).

(2) Those provisions of ICTA are--

(a) sections 65 and 68 (calculation of the amount of the income on which tax is to be charged in the tax year);

(b) section 584 (relief for unremittable overseas income);

576 Person liable for tax

If section 573 applies, the person liable for any tax charged under this Part is the person receiving or entitled to the pension.

Chapter 5 United Kingdom social security pensions

577 United Kingdom social security pensions

(1) This section applies to--

the state pension,
graduated retirement benefit,
industrial death benefit,
widowed mother's allowance,
widowed parent's allowance, and
widow's pension.

(2) In this section--

"state pension" means any pension payable under--
(a)
section 44, 48A, 48B, 48BB, 51 or 78 of SSCBA 1992, or
(b)
section 44, 48, 48B, 48BB, 51 or 78 of SSCB(NI)A 1992;
"graduated retirement benefit" means any benefit payable under--
(a)
section 36 or 37 of the National Insurance Act 1965 (c. 51), or
(b)
section 35 or 36 of the National Insurance Act (Northern Ireland) 1966 (c. 6 (N.I.));
"industrial death benefit" means any benefit payable under--
(a)
section 94 of, and Part 6 of Schedule 7 to, SSCBA 1992, or
(b)
section 94 of, and Part 6 of Schedule 7 to, SSCB(NI)A 1992;
"widowed mother's allowance" means any allowance payable under--
(a)
section 37 of SSCBA 1992, or
(b)
section 37 of SSCB(NI)A 1992;
"widowed parent's allowance" means any allowance payable under--
(a)
section 39A of SSCBA 1992, or
(b)
section 39A of SSCB(NI)A 1992;
"widow's pension" means any pension payable under--
(a)
section 38 of SSCBA 1992, or
(b)
section 38 of SSCB(NI)A 1992.

(3) In subsection (2), in paragraph (b) of the definition of state pension, the reference to section 48 of SSCB(NI)A 1992 is a reference to the section 48 inserted by paragraph 3(1) of Schedule 2 to the Pensions (Northern Ireland) Order 1995 (S.I. 1995/3213 (N.I. 22)).

(4) Chapter 17 of this Part provides a partial exemption for a pension to which this section applies in respect of any part of the pension which is attributable to an increase in respect of a child (see section 645).

578 Taxable pension income

If section 577 applies, the taxable pension income for a tax year is the full amount of the pension, benefit or allowance accruing in that year irrespective of when any amount is actually paid.

579 Person liable for tax

If section 577 applies, the person liable for any tax charged under this Part is the person receiving or entitled to the pension, benefit or allowance.

Chapter 6 Approved retirement benefits schemes

Pensions and annuities

580 Pensions and annuities

This section applies to--

(a) any pension or annuity paid under a retirement benefits scheme which is either approved or being considered for approval, and

(b) any annuity acquired using funds held for the purposes of a retirement benefits scheme which is either approved or being considered for approval.

581 Taxable pension income

If section 580 applies, the taxable pension income for a tax year is the full amount of the pension or annuity accruing in that year irrespective of when any amount is actually paid.

582 Person liable for tax

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