Part 6 U.K. Employment income: income which is not earnings or share-related

Chapter 2 U.K. Benefits from [F1 employer-financed retirement benefits]

Textual Amendments

F1 Words in Pt. 6 Ch. 2 heading substituted (6.4.2006) by Finance Act 2004 (c. 12), ss. 249(2), 284(1) (with Sch. 36)

Benefits treated as employment income U.K.

[F2 393 Application of this Chapter U.K.

(1) This Chapter applies to relevant benefits provided under an employer-financed retirement benefits scheme.

(2) Section 393A defines “employer-financed retirement benefits scheme” and section 393B defines “relevant benefits”.]

Textual Amendments

F2 Ss. 393-393B substituted for s. 393 (6.4.2006) by Finance Act 2004 (c. 12), ss. 249(3), 284(1) (with Sch. 36)

[F2 393A Employer-financed retirement benefits scheme U.K.

(1) In this Chapter “employer-financed retirement benefits scheme” means a scheme for the provision of benefits consisting of or including relevant benefits to or in respect of employees or former employees of an employer.

(2) But neither—

(a) a registered pension scheme, nor

(b) a section 615(3) scheme,

is an employer-financed retirement benefits scheme.

(3) “Section 615(3) scheme” means a superannuation fund to which section 615(3) of ICTA applies.

(4) “Scheme” includes a deed, agreement, series of agreements, or other arrangements.

Textual Amendments

F2 Ss. 393-393B substituted for s. 393 (6.4.2006) by Finance Act 2004 (c. 12), ss. 249(3), 284(1) (with Sch. 36)

393B Relevant benefits U.K.

(1) In this Chapter “relevant benefits” means any lump sum, gratuity or other benefit (including a non-cash benefit) provided (or to be provided)—

(a) on or in anticipation of the retirement of an employee or former employee,

(b) on the death of an employee or former employee,

(c) after the retirement or death of an employee or former employee in connection with past service,

(d) on or in anticipation of, or in connection with, any change in the nature of service of an employee, or

(e) to any person by virtue of a pension sharing order or provision relating to an employee or former employee.

(2) But—

(a) benefits charged to tax under Part 9 (pension income),

(b) benefits chargeable to tax by virtue of Schedule 34 to FA 2004 (which applies certain charges under Part 4 of that Act in relation to non-UK schemes), and

(c) excluded benefits,

are not relevant benefits.

(3) The following are “excluded benefits”—

(a) benefits in respect of ill-health or disablement of an employee during service,

(b) benefits in respect of the death by accident of an employee during service,

(c) benefits under a relevant life policy, and

(d) benefits of any description prescribed by regulations made by the Board of Inland Revenue.

(4) In subsection (3)(c) “relevant life policy” means—

[F3 (a) an excepted group life policy as defined in section 480 of ITTOIA 2005,]

(b) a policy of life insurance the terms of which provide for the payment of benefits on the death of a single individual and with respect to which [F4 —

(i) condition A in section 481 of that Act would be met if paragraph (a) in that condition referred to the death, in any circumstances or except in specified circumstances, of that individual (rather than the death in any circumstances of each of the individuals insured under the policy) and if the condition did not include paragraph (b), and

(ii) conditions C and D in that section and conditions A and C in section 482 of that Act are met, or]

(c) a policy of life insurance that would be within paragraph (a) or (b) but for the fact that it provides for a benefit which is an excluded benefit under or by virtue of paragraph (a), (b) or (d) of subsection (3).

[F5 (4A) Regulations under subsection (3)(d) may include provision having effect in relation to times before they are made.]

(5) In subsection (1)(e) “pension sharing order or provision” means any such order or provision as is mentioned in section 28(1) of WRPA 1999 or Article 25(1) of WRP(NI)O 1999.]

Textual Amendments

F2 Ss. 393-393B substituted for s. 393 (6.4.2006) by Finance Act 2004 (c. 12), ss. 249(3), 284(1) (with Sch. 36)

F3 S. 393B(4)(a) substituted by 2004 c. 12, s. 249(3) (as amended (6.4.2006) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 651(2)(a), Sch. 2 para. 161 (with Sch. 2))

F4 Words in s. 393B(4)(b) substituted by 2004 c. 12, s. 249(3) (as amended (6.4.2006) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 651(2)(b), Sch. 2 para. 161 (with Sch. 2))

F5 S. 393B(4A) inserted (19.7.2007) by Finance Act 2007 (c. 11), Sch. 20 paras. 21, 24(3)

394 Charge on benefit to which this Chapter applies U.K.

(1) If a benefit to which this Chapter applies is received by an individual, the amount of the benefit counts as employment income of the individual for the relevant tax year.

[F6 (1A) Subsection (1) does not apply in relation to the benefit if the total amount of the benefits to which this Chapter applies received by the individual in the relevant tax year does not exceed £100.]

(2) If a benefit to which this Chapter applies is received by a person who is not an individual, the [F7 person who is (or persons who are) the responsible person in relation to] the scheme under which the benefit is provided is chargeable [F8 to income tax] on the amount of the benefit for the relevant tax year.

(3) In [F9 this section] the “relevant tax year” is the tax year in which the benefit is received.

(4) For the purposes of subsection (2), the rate of tax is [F10 50%] or such other rate as may for the time being be specified by the Treasury by order.

[F11 (4A) Subsection (4B) applies if the receipt of a benefit to which this Chapter applies gives rise to other relevant income of the employee, or the former employee, to or in respect of whom the benefit is provided.

(4B) Subsection (1) or (2) (as the case may be) applies to the amount of the benefit only so far as that amount exceeds the other relevant income.

(4C) In subsections (4A) and (4B) “other relevant income” means—

(a) general earnings of the employee or former employee which are chargeable to income tax,

(b) an amount which counts as employment income of the employee or former employee under Chapter 2 of Part 7A, or

(c) an amount which would be within paragraph (a) or (b) apart from the employee or former employee having been non-UK resident for any tax year.]

(5) No liability to income tax arises by virtue of any other provision of this Act in respect of a benefit to which this Chapter applies.

[F12 (6) Subsection (5) does not affect—

(a) any liability to income tax on general earnings, or

(b) any liability to income tax on an amount which counts as employment income under Chapter 2 of Part 7A.]

Textual Amendments

F6 S. 394(1A) inserted (6.4.2006) by Finance Act 2004 (c. 12), ss. 249(5), 284(1) (with Sch. 36)

F7 Words in s. 394(2) substituted (6.4.2006) by Finance Act 2004 (c. 12), ss. 249(6), 284(1) (with Sch. 36)

F8 Words in s. 394(2) substituted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5), s. 883(1), Sch. 1 para. 595 (with Sch. 2)

F9 Words in s. 394(3) substituted (6.4.2006) by Finance Act 2004 (c. 12), ss. 249(7), 284(1) (with Sch. 36)

F10 Word in s. 394(4) substituted (with effect in accordance with art. 1(2) of the amending S.I.) by The Taxation of Pensions Schemes (Rates, etc) Order 2010 (S.I. 2010/536), arts. 1(1), 2

F11 S. 394(4A)-(4C) inserted (with effect in accordance with Sch. 2 paras. 52-59, 60 of the amending Act) by Finance Act 2011 (c. 11), Sch. 2 para. 14(2)

F12 S. 394(6) inserted (with effect in accordance with Sch. 2 paras. 52-59, 60 of the amending Act) by Finance Act 2011 (c. 11), Sch. 2 para. 14(3)

Modifications etc. (not altering text)

C1 S. 394 restricted (22.7.2004) by Finance Act 2004 (c. 12), Sch. 36 paras. 54(2)(3)(a), 55(2) (with s. 283(5), Sch. 36)

[F13 395 Reduction where employee has contributed U.K.

(1) This section applies in relation to a relevant benefit under an employer-financed retirement benefits scheme in the form of a lump sum where, under the scheme, an employee has paid any sum or sums by way of contribution to the provision of the lump sum.

(2) The amount which, by virtue of section 394, counts as employment income, or is chargeable to tax under [F14 subsection (2) of that section], is the amount of the lump sum reduced by the sum, or the aggregate of the sums, paid by the employee by way of contribution to the provision of the lump sum.

(3) A reduction under this section may not be claimed in respect of the same contribution in relation to more than one lump sum.

(4) It is to be assumed, unless the contrary is shown, that no reduction is applicable under this section.]

Textual Amendments

F13 S. 395 substituted for ss. 395-397 (6.4.2006) by Finance Act 2004 (c. 12), ss. 249(8), 284(1) (with Sch. 36)

F14 Words in s. 395 substituted by 2004 c. 12, s. 249(8) (as amended (6.4.2006) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 651(3), Sch. 2 para. 161 (with Sch. 2))

Modifications etc. (not altering text)

C2 S. 395 modified (22.7.2004) by Finance Act 2004 (c. 12), Sch. 36 paras. 54(3)(b), 55(3) (with s. 283(5), Sch. 36)

[F15 395A Benefits under old section 222 schemes not taxed by virtue of section 394 U.K.

Section 394 does not apply to a benefit provided under an employer–financed retirement benefits scheme if—

(a) immediately before 6th April 1980 the scheme was approved under section 222 of ICTA 1970,

(b) the scheme was not approved under Chapter II of Part II of FA 1970,

(c) no material changes have been made to the terms on which benefits are provided under the scheme after 5th April 1980, and

(d) no contributions have been paid under the scheme after that date.]

Textual Amendments

F15 S. 395A inserted (with effect in accordance with art. 2(2) of the amending S.I.) by The Enactment of Extra-Statutory Concessions Order 2009 (S.I. 2009/730), arts. 1(1), 2

F13 396 Certain lump sums not taxed by virtue of section 394 U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F13 S. 395 substituted for ss. 395-397 (6.4.2006) by Finance Act 2004 (c. 12), ss. 249(8), 284(1) (with Sch. 36)

F13 397 Certain lump sums: calculation of amount taxed by virtue of section 394 U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F13 S. 395 substituted for ss. 395-397 (6.4.2006) by Finance Act 2004 (c. 12), ss. 249(8), 284(1) (with Sch. 36)

Valuation of benefits etc. U.K.

398 Valuation of benefits U.K.

(1) In the case of a cash benefit, for the purposes of this Chapter the amount of a benefit is taken to be the amount received.

(2) In the case of a non-cash benefit, for the purposes of this Chapter the amount of a benefit is taken to be the greater of—

(a) the amount of earnings (as defined in Chapter 1 of Part 3) that the benefit would give rise to if it were received for performance of the duties of an employment (money’s worth), and

(b) the cash equivalent of the benefit under the benefits code if it were so received and the code applied to it.

(3) For the purposes of subsection (2) the benefits code has effect with the modifications in subsections (4) to (6).

(4) References in the benefits code to the employee are to be taken as references to the person by whom the benefit is received.

(5) References in the benefits code to the employer are to be taken as including references to the former employer.

(6) Where—

(a) section 106 (cash equivalent: cost of accommodation over £75,000) applies, and

(b) the amount referred to in section 105(2)(b) (the sum made good) exceeds the amount referred to in section 105(2)(a) (the rental value),

the amount to be subtracted under paragraph (b) of step 4 of the calculation in section 106(2) is that excess (and not only the excess rent referred to there).

399 Employment-related loans: interest treated as paid U.K.

(1) This section applies if—

(a) an amount consisting of, or including, an amount representing the benefit of a loan (“a taxable amount”) counts as employment income of an individual in a tax year under section 394(1), or

(b) the [F16 person who is (or any of the persons who are) the responsible person in relation to] a scheme is charged to tax on a taxable amount F17 ... under section 394(2).

(2) The individual or the [F18 responsible person] is to be treated for all purposes of the Tax Acts (other than this Chapter) as having paid interest on the loan in the tax year equal to the amount representing the cash equivalent of the loan.

(3) The interest is to be treated—

(a) as accruing during the period in the tax year during which the loan is outstanding, and

(b) as paid at the end of the period.

(4) The interest is not to be treated—

(a) as income of the person making the loan, or

(b) as relevant loan interest to which section 369 of ICTA applies (mortgage interest payable under deduction of tax).

Textual Amendments

F16 Words in s. 399(1) substituted (6.4.2006) by Finance Act 2004 (c. 12), ss. 249(9), 284(1) (with Sch. 36)

F17 Words in s. 399(1)(b) repealed (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5), s. 883(1), Sch. 1 para. 597, Sch. 3 (with Sch. 2)

F18 Words in s. 399(2) substituted (6.4.2006) by Finance Act 2004 (c. 12), ss. 249(10), 284(1) (with Sch. 36)

Interpretation U.K.

[F19 399A Responsible person U.K.

(1) The following heads specify the person who is, or persons who are, the responsible person in relation to an employer-financed retirement benefits scheme for the purposes of this Chapter.

(2) But if a person is, or persons are, the responsible person in relation to the scheme by virtue of being specified under one head, no-one is the responsible person in relation to the scheme by virtue of being specified under a later head.

Head 1

If there are one or more trustees of the scheme who are resident in the United Kingdom, that trustee or each of those trustees.

Head 2

If there are one or more persons who control the management of the scheme, that person or each of those persons.

Head 3

If alive or still in existence, the employer, or any of the employers, who established the scheme and any person by whom that employer, or any of those employers, has been directly or indirectly succeeded in relation to the provision of benefits under the scheme.

Head 4

Any employer of employees to or in respect of whom benefits are, or are to be, provided under the scheme.

Head 5

If there are one or more trustees of the scheme who are not resident in the United Kingdom, that trustee or each of those trustees.]

Textual Amendments

F19 Ss. 399A, 400 substituted for s. 400 (6.4.2006) by Finance Act 2004 (c. 12), ss. 249(11), 284(1) (with Sch. 36)

[F19 400 Interpretation U.K.

In this Chapter—

• “employer-financed retirement benefits scheme” has the meaning given by section 393A;

• “relevant benefits” has the meaning given by section 393B; and

• “responsible person” has the meaning given by section 399A.]

Textual Amendments

F19 Ss. 399A, 400 substituted for s. 400 (6.4.2006) by Finance Act 2004 (c. 12), ss. 249(11), 284(1) (with Sch. 36)