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Several new sections that have been added to the Income Tax (Earnings and Pensions) Act 2003 to coincide with the reform of pension schemes come into effect from 6 April 2006.
Chapter 2 of Part 6 of the Act deals with the tax treatment of "relevant benefits" provided under "employer-financed retirement benefits" schemes. Such schemes are defined as schemes "for the provision of benefits consisting of or including relevant benefits to or in respect of employees or former employees of an employer". They are, effectively, unregistered pension schemes and, for example, most lump sum payments made from such schemes are taxed under PAYE. They are not the same as "registered pension schemes", (as tax-approved pension schemes are known from 6 April 2006).
The amount of any "relevant benefits" provided under employer-financed retirement benefits schemes is treated as employment income and is subject to income tax as appropriate. "Relevant benefits" are defined as "any lump sum, gratuity or other benefit (including a non-cash benefit) provided, (or to be provided) -
- on or in anticipation of the retirement of an employee or former employee,
- on the death of an employee or former employee,
- after the retirement or death of an employee or former employee in connection with past service,
- on or in anticipation of, or in connection with, any change in the nature of service of an employee, or
- to any person by virtue of a pension sharing order or provision relating to an employee or former employee."
The definition does not include income from a pension scheme. Totally separate rules apply to the taxation of pension income.
Certain benefits are specifically excluded from the definition of "relevant benefits". They are
- benefits in respect of ill-health or disablement of an employee during service,
- benefits in respect of the death by accident of an employee during service,
- benefits under a relevant life policy, and
- benefits of any description prescribed by regulations made by the Commissioners for Her Majesty's Revenue and Customs.
As permitted by (d) above, HMRC has made the Employer-Financed Retirement Benefits (Excluded Benefits for Tax Purposes) Regulations 2006, to come into force from 6 April 2006. These new Regulations prescribe a lump-sum benefit as an excluded benefit if
- it is paid by an employer-financed retirement benefit scheme in respect of an employee's non-accidental death in service, and
- payment of such a lump sum benefit is already provided for under the rules of the scheme on 6 April 2006.
...back to 9 February 2006
Source:
The Employer-Financed Retirement Benefits (Excluded Benefits for Tax Purposes) Regulations 2006
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For Payroll and Human Resource Professionals
