Income and Corporation Taxes Act 1988

16 The following paragraphs shall be inserted after paragraph 5—

“5A (1) Where the income of the holder or past holder of the office or employment for the chargeable period of which the payment is treated as income includes income, income tax on which he is entitled to charge against any other person, or to deduct, retain or satisfy out of any payment which he is liable to make to any other person, the amounts referred to in sub-paragraphs (a) to (c) of paragraph 4 above shall be calculated as if that tax were not chargeable in respect of that income.

(2) Where for any year of assessment an individual claims relief under paragraph 4 above, and also under section 550 or Schedule 2, or under both that section and that Schedule, then, in computing the relief under paragraph 4 above, his income shall be deemed to include—

(a) in respect of any amount which would otherwise be included therein by virtue of section 547(1)(a), no greater amount than the appropriate fraction thereof within the meaning of section 550, and

(b) in respect of any chargeable sum within the meaning of Schedule 2 (including two or more sums treated for the purposes of paragraph 3 of that Schedule as one chargeable sum), no greater amount than the balance (if any) of the yearly equivalent thereof remaining after the making of any deduction required by that paragraph.

5B In this Schedule “the appropriate fraction” (except in paragraph 5A(2)(a)) and “the appropriate multiple”, in relation to any payment, mean respectively—

(a) where the payment is not a payment of compensation for loss of office, one-sixth and six, and

(b) where the payment is a payment of compensation for loss of office, one divided by the relevant number of years of unexpired service, and that number of years,

and for the purposes of this paragraph “the relevant number of years of unexpired service” means the number of complete years taken into account in calculating the amount of the payment, being years for which the holder of the office or employment would have been entitled (otherwise than by virtue of arrangements made in contemplation of his retirement or removal or of any relevant change in the functions or emoluments of the office or employment) to retain the office or employment or its full emoluments, and where the period so taken into account is less than one complete year or exceeds an exact number of years, it shall be treated for the purposes of this paragraph as one complete year or as the next higher number of complete years, as the case may be.”