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

(The document as of February, 2008)

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(2) The income tax treated as paid under subsection (1) is not repayable.

627 Meaning of "grossing up"

(1) In section 624 "grossing up" by reference to the basic rate means calculating the amount ("the gross amount") which after deduction of income tax at the basic rate would equal the amount to be grossed up ("the net amount").

(2) The gross amount is the sum of the net amount and the tax deducted.

628 Interpretation

(1) In this Chapter--

"employee"--
(a)
includes a person who is to be, or has been, an employee, and
(b)
in relation to a company, includes any officer or director of the company and any other person taking part in the management of the affairs of the company;
"exempt approved scheme" has the meaning given in section 592(1) of ICTA;
"relevant statutory scheme" has the meaning given in section 611A(1) of ICTA.

(2) For the purposes of the definition of "employee" in subsection (1), "director", in relation to a company, includes--

(a) in the case of a company the affairs of which are managed by a board of directors or similar body, a member of that board or body,

(b) in the case of a company the affairs of which are managed by a single director or similar person, that person,

and includes a person who is to be or has been a director.

(3) If section 623 applies to a payment made out of funds which are or have been held for the purposes of a relevant statutory scheme established under a public general Act, any reference in this Chapter to an employee includes references to a person who holds an office, to a person who is to hold an office and to a person who has ceased to hold an office.

This is without prejudice to subsection (1).

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

Chapter 14 Pre-1973 pensions paid under the Overseas Pensions Act 1973

629 Pre-1973 pensions paid under the Overseas Pensions Act 1973

(1) This section applies to a pension if--

(a) it is paid under section 1 of OPA 1973 (whether or not paid out of a fund established under a scheme made under that section),

(b) it is a pre-1973 pension, and

(i) the original pensioner, or

(ii) the widow or widower of the original pensioner.

(2) But this section does not apply to a part of a pension which is paid because the Pensions (Increase) Act 1971 (c. 56) applies to it (and accordingly section 569 applies to that part of the pension).

(3) Chapter 18 of this Part provides an exemption where a pension to which this section applies is paid to a person who is not resident in the United Kingdom (see sections 647 and 651).

630 Interpretation

(1) For the purposes of this Chapter a person is the "original pensioner" in relation to a pension if--

(a) the pension is payable by virtue of the person's service, and

(b) the person retired from that service before 6th April 1973.

(2) For the purposes of this Chapter a pension is a "pre-1973 pension" if, immediately before 6th April 1973--

(a) the pension was payable to--

(i) the original pensioner, or

(ii) the widow or widower of the original pensioner, and

(b) that person was resident in the United Kingdom.

631 Taxable pension income

(1) If section 629 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 sections 65 and 68 (calculation of the amount of the income on which tax is to be charged in the tax year).

632 Person liable for tax

If section 629 applies, the person liable for any tax charged under this Part is the person receiving or entitled to the pension.

Chapter 15 Voluntary annual payments

633 Voluntary annual payments

(1) This section applies to an annual payment which--

(a) is paid voluntarily, or

(b) is capable of being discontinued,

if conditions A and B are met.

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

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

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

(3) Condition B is that the payment 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) But this section applies to a payment which is paid by or on a behalf of a person who is outside the United Kingdom only if it is paid to a person resident in the United Kingdom.

(5) 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.

634 Taxable pension income: UK voluntary annual payments

(1) The taxable pension income for payments to which section 633 applies is determined in accordance with this section if the payments are made by or on behalf of a person who is in the United Kingdom.

(2) The taxable pension income for a tax year is the full amount of the payments accruing in that year irrespective of when any amount is actually paid.

635 Taxable pension income: foreign voluntary annual payments

(1) The taxable pension income for payments to which section 633 applies is determined in accordance with this section if the payments are made by or on behalf of a person who is outside the United Kingdom.

(2) 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 (3)).

(3) 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);

636 Person liable for tax

If section 633 applies, the person liable for any tax charged under this Part is the person receiving or entitled to the payment.

Chapter 16 Exemption for certain lump sums

637 Exemption for lump sums provided under certain pension schemes etc.

(1) No liability to income tax arises on a lump sum provided under--

(a) approved personal pension arrangements,

(b) a tax-exempt pension scheme, or

(2) But subsection (1)(b) applies to a lump sum paid in compensation for loss of office or employment, or for loss or diminution of earnings, only if--

(a) the payment is properly regarded as earned by past services, or

(b) the loss of office or employment, or the loss or diminution of earnings, is due to ill-health.

(3) Subsection (1)(b) does not apply to a lump sum to which section 583 (approved retirement benefits schemes: unauthorised payments) or section 623 (return of surplus AVCs) applies.

This includes cases where section 583 applies by virtue of section 593.

(4) Subsection (1)(c) applies to a lump sum only if it is provided in consequence of a right which meets the conditions in paragraphs (a) and (b) of section 620(3) of ICTA.

(5) In this section--

"approved personal pension arrangements" has the same meaning as in Chapter 4 of Part 14 of ICTA (see section 630(1) of ICTA);
"earnings" means earnings or amounts treated as earnings which constitute employment income (see section 7(2)(a) or (b));
"office" includes in particular any position which has an existence independent of the person who holds it and may be filled by successive holders;
"retirement annuity contract" has the same meaning as in Chapter 9 of this Part (see section 606).

(6) In this section "tax-exempt pension scheme" means--

(a) a retirement benefits scheme which is--

(i) an approved scheme,

(ii) a relevant statutory scheme, or

(iii) a scheme set up by a government outside the United Kingdom for the benefit, or primarily for the benefit, of its employees, or

(b) any such scheme or fund as was described in section 221(1) and (2) of ICTA 1970 (schemes to which payments could be made without charge to tax under section 220 of that Act).

(7) For the purposes of subsection (6)--

"relevant statutory scheme" has the meaning given in section 611A(1) of ICTA;
"retirement benefits scheme" has the meaning given in section 611 of ICTA;
"approved", in relation to a retirement benefits scheme, means that the scheme is approved by the Board of Inland Revenue for the purposes of--
(a)
Chapter 2 of Part 2 of FA 1970, or
(b)
Chapter 1 of Part 14 of ICTA.

Chapter 17 Exemptions: any taxpayer

638 Awards for bravery

(1) No liability to income tax arises on a pension or annuity if it is paid to the holder of an award for bravery in respect of the award.

(2) In this section "award for bravery" means--

the Victoria Cross,
the George Cross,
the Albert Medal,
the Edward Medal,
the Military Cross,
the Distinguished Flying Cross,
the Distinguished Conduct Medal,
the Conspicuous Gallantry Medal,
the Distinguished Service Medal,
the Military Medal,
the Distinguished Flying Medal.

639 Pensions in respect of death due to military or war service

No liability to income tax arises on these pensions and allowances--

(a) a pension or allowance payable by or on behalf of the Department of Work and Pensions under so much of any Order in Council, Royal Warrant, order or scheme as relates to death due to--

(i) service in the armed forces of the Crown,

(ii) wartime service in the merchant navy, or

(iii) war injuries;

(b) a pension or allowance--

(i) payable by the Ministry of Defence in respect of death due to peacetime service in the armed forces of the Crown before 3rd September 1939, and

(ii) payable at rates, and subject to conditions, similar to those of a pension within paragraph (a);

(i) payable under the law of a country other than the United Kingdom, and

(ii) of a character substantially similar to a pension within paragraph (a) or (b).

640 Exemption under section 639 where income withheld

(1) This section applies if--

(a) an individual is entitled to both of the following--

(i) a pension or allowance mentioned in section 639 ("pension A"), and

(ii) any other pension or allowance ("pension B"), and

(b) the whole or a part of pension A is withheld because of the individual's entitlement to pension B.

(2) In such a case, an amount of pension B equal to the withheld amount of pension A is treated for the purposes of section 639 as part of pension A.

641 Wounds and disability pensions

(1) No liability to income tax arises on--

(a) a wounds pension granted to a member of the armed forces of the Crown;

(b) retired pay of a disabled officer granted on account of medical unfitness attributable to or aggravated by service in the armed forces of the Crown;

(c) a disablement or disability pension granted to a member of the armed forces of the Crown, other than a commissioned officer, on account of medical unfitness attributable to or aggravated by service in the armed forces of the Crown;

(d) a disablement pension granted to a person who has been employed in the nursing services of any of the armed forces of the Crown on account of medical unfitness attributable to or aggravated by service in the armed forces of the Crown;

(e) an injury or disablement pension payable under any scheme made under--

(i) the Injuries in War (Compensation) Act 1914 (c. 30), or

(ii) the Injuries in War (Compensation) Act 1914 (Session 2) (5 & 6 Geo. 5 c. 18);

(f) an injury or disablement pension payable under any War Risks Compensation Scheme for the Mercantile marine;

(g) a pension--

(i) granted to a person on account of disablement, and

(ii) payable under any scheme made under section 3, 4 or 5 of the Pensions (Navy, Army, Air Force and Mercantile Marine) Act 1939 (c. 83).

(2) But if the Secretary of State certifies that a pension or retired pay of a kind listed in subsection (1) is only partly attributable to disablement or disability, that subsection applies only to the part attributable to disablement or disability.

642 Compensation for National-Socialist persecution

No liability to income tax arises on a pension or annuity which is payable under any special provision for victims of National-Socialist persecution which is made by the law of--

(a) the Federal Republic of Germany or any part of it, or

(b) Austria.

643 Malawi, Trinidad and Tobago and Zambia government pensions

(1) No liability to income tax arises on--

(a) a Malawi government pension,

(b) a Trinidad and Tobago government pension, or

if conditions A, B and C are met.

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

(a) the original pensioner, or

(b) the widow or widower of the original pensioner.

(3) Condition B is that the pension is now paid under section 1 of OPA 1973 (whether or not it is paid out of a fund established under a scheme made under that section).

(4) Condition C is that, at the time the pension is paid, provision is made by double taxation relief arrangements which would exempt the pension from income tax in the United Kingdom if the pension were still paid by the relevant government (rather than under section 1 of OPA 1973).

(5) Subsection (1) does not apply to any part of a pension which is paid because the Pensions (Increase) Act 1971 (c. 56) applies to it.

(6) In this section--

"double taxation relief arrangements" means arrangements specified in an Order in Council making any such provisions as are referred to in section 788 of ICTA;
"Malawi government pension" means a pension payable by the government of Malawi for services rendered--
(a)
to the government of Malawi, or
(b)
to the government of the Federation of Rhodesia and Nyasaland,

in the discharge of government functions;
"Trinidad and Tobago government pension" means a pension payable by the government of Trinidad and Tobago for services rendered to the government of Trinidad and Tobago in the discharge of governmental functions;
"Zambia government pension" means a pension payable by the government of Zambia for services rendered--
(a)
to the government of Zambia,
(b)
to the government of Northern Rhodesia, or
(c)
to the government of the Federation of Rhodesia and Nyasaland,

in the discharge of governmental functions.

(7) For the purposes of this section a person is the "original pensioner" in relation to a pension if--

(a) the pension is payable by virtue of the person's service, and

(b) the person retired from that service before 6th April 1973.

644 Pensions payable where employment ceased due to disablement

(1) No liability to income tax arises on the exempt amount of a disablement pension.

(2) For the purposes of this section a pension is a "disablement pension" if--

(a) the pension is payable because a person has ceased to hold an employment or office because of disablement, and

(b) that disablement is attributable to--

(i) performance of the duties of the employment or office, or

(ii) war injuries.

But "disablement pension" does not include any pension to which section 580 or 590 applies.

(3) The exempt amount of a disablement pension is determined in accordance with the following steps.

Step 1

Determine what pension would have been payable if--

(a)

the person had ceased to hold the employment or office because of the disablement mentioned in subsection (2)(a), but

(b)

the disablement had not been attributable to--

(i)

performance of the duties of the employment or office, or

(ii)

war injuries.

Step 2

If no pension would have been payable, the exempt amount is the amount of the disablement pension.

If a pension of a smaller amount than the disablement pension would have been payable, the exempt amount is the amount by which the disablement pension exceeds the smaller amount.

In any other case, the exempt amount is nil.

(4) For the purposes of 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.

645 Social security pensions: increases in respect of children

(1) No liability to income tax arises on a part of a social security pension which is attributable to an increase in respect of a child.

(2) In this section "social security pension" means--

(a) any pension, benefit or allowance to which section 577 applies, and

(b) any pension, benefit or allowance which--

(i) is payable under the law of a country or territory outside the United Kingdom, and

(ii) is substantially similar in character to a pension, benefit or allowance to which section 577 applies.

646 Former miners etc: coal and allowances in lieu of coal

(1) No liability to income tax arises on--

(a) the provision of coal or smokeless fuel--

(i) to a former colliery worker, or

(ii) to the widow or widower of a former colliery worker, or

(b) any allowance paid to such a person in lieu of such provision,

if the condition in subsection (2) is met.

(2) That condition is that the amount of coal or fuel provided or in respect of which the allowance is paid does not substantially exceed the amount reasonably required for personal use.

(3) That condition is assumed to be met unless the contrary is shown.

(4) In this section "former colliery worker" means--

(a) any person who has ceased to be employed as a coal miner, or

(b) any other person who has ceased to be employed at or about a colliery otherwise than in clerical, administrative or technical work.

Chapter 18 Exemptions: Non-UK resident taxpayers

647 Introduction and meaning of "foreign residence condition" etc.

(1) The provisions of this Part provide that no liability to income tax arises on certain kinds of pensions if the foreign residence condition is met.

(2) The foreign residence condition is met in relation to a pension if the pension is payable to a person who is not resident in the United Kingdom.

(3) For the purposes of the foreign residence condition, a person is taken to be not resident in the United Kingdom only if--

(a) a person makes a claim to the Board of Inland Revenue that the person is not resident, and

(b) the Board is satisfied that the person is not resident.

(4) In this Chapter "pension" includes--

(a) a gratuity or any sum payable on or in respect of death,

(b) a return of contributions, and

648 The Central African Pension Fund

(1) No liability to income tax arises on a pension which is paid from the Central African Pension Fund if the foreign residence condition is met.

(2) In this section "the Central African Pension Fund" means the fund established under that name by section 24 of the Federation of Rhodesia and Nyasaland (Dissolution) Order in Council 1963 (S.I. 1963/2085).

649 Commonwealth government pensions

(1) No liability to income tax arises on a pension paid out of a fund which is established--

(a) in the United Kingdom,

(b) by a Commonwealth government,

if the foreign residence condition is met.

(2) In this section "Commonwealth government" means--

(a) the government of a territory or country mentioned in subsection (3),

(b) the government of any part of a territory or country mentioned in subsection (3), or

(3) The territories and countries referred to in subsection (2) are--

(a) a country mentioned in Schedule 3 to the British Nationality Act 1981 (c. 61) apart from Australia, Canada, New Zealand, India, Sri Lanka and Cyprus,

(b) an associated state,

(d) a protectorate,

(e) a protected state, and

(f) a United Kingdom trust territory.

(4) In subsection (2)(c) the reference to a government constituted for two or more of the territories or countries mentioned in subsection (3) includes a reference to any authority established for the purpose of providing or administering services which are common to, or relate to matters of common interest to, two or more of those territories or countries.

(5) In subsection (3)(f) "United Kingdom trust territory" means a territory administered by the government of the United Kingdom under the trusteeship system of the United Nations.

650 Oversea Superannuation Scheme

(1) No liability to income tax arises on a pension which is paid under the Oversea Superannuation Scheme (formerly known as the Colonial Superannuation Scheme) if the foreign residence condition is met.

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