Revenue and Customs Brief 17/07
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Issued 15 February 2007
Withdrawal of Statement of Practice SP13/91
Ex gratia payments made on termination of an office or employment due to
retirement or death
SP13/91 provided that, on termination of an office or employment, due to
retirement or death, ex-gratia awards were payable tax-free, in certain
Paragraphs 7 and 8 of this statement of practice, broadly speaking, permitted
certain small payments to be made tax-free. This applied where HMRC would have
exercised its statutory discretion to allow a tax-approved retirement benefits
scheme to make payments of a particular kind.
Part 4 of the Finance Act 2004 became effective from 6 April 2006. This
radically altered the tax rules relating to what are now registered pension
schemes. The practice that was in operation before 6 April 2006, which permitted
these tax-free payments, is not compatible with the new registered regime.
It is not normally possible that a lump sum on retirement is the only benefit
that a registered pension scheme provides. The lump sum payment, made without a
relevant pension, would, therefore, generally be subject to income tax as an
unauthorised payment. The practice set out in SP13/91 therefore ceased to be
appropriate as from 6 April 2006.
An arrangement established on or after 6 April 2006 to make ex-gratia
payments on retirement or death will constitute an Employer-Financed Retirement
Benefits Scheme, for tax purposes.
Detailed guidance on the tax treatment of such schemes is set out in the
Employment Income Manual (EIM).
Statement of Practice 13/91 was consequently withdrawn with effect for
payments made on or after 6 April 2006 - see EIM 15170.
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Article Published/Sorted/Amended on Scopulus 2007-02-15 13:52:12 in Tax Articles