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Income Tax (Earnings and Pensions) Act 2003

Paragraph 41

3689.This paragraph applies to benefits provided by non-approved retirement benefits schemes that were entered into before 1 December 1993 and have not been varied since so as to affect the benefits provided. It derives from the original version of section 596A of ICTA introduced by paragraphs 1, 9 and 18(7) of Schedule 6 to FA 1989.

3690.Section 596A of ICTA was subject to major changes introduced by section 108 FA 1994. Those changes are reflected in the rewrite of section 596A in Chapter 2 of Part 6 of this Act. But the changes do not apply to schemes that existed at 1 December 1993 unless the scheme has been varied with a view to changing the benefits provided. Unaltered pre-December 1993 schemes continue to be taxed by the old rules.

3691.Sub-paragraph (1) gives the conditions for the paragraph to apply.

3692.Sub-paragraph (2) disapplies section 393(2). That subsection provides that the charge in Chapter 2 of Part 6 of this Act does not apply to pension income. This rule does not appear in the original section 596A of ICTA. In practice there would not be a double charge. If a non-approved retirement benefits scheme paid a pension it would be taxed as a pension. It is more likely that the scheme would provide a lump sum that the recipient would use to buy an annuity that would be taxed under Schedule D Case III.

3693.Sub-paragraph (3) disapplies section 394(5). That subsection provides that the charge in Chapter 2 of Part 6 of this Act takes priority over any other charge in the Act. That rule does not appear in the original section 596A of ICTA.

3694.Sub-paragraph (4) provides two sections to be substituted for sections 395, 396 and  397 in Chapter 2 of Part 6 of this Act.

3695.Section 394A derives from subsections (8) and (9) of the original version of section 596A of ICTA. Tax is not charged on any lump sum financed by contributions paid by the employer provided that the employee has been taxed on those contributions. The difference between this provision and section 396 is that under the original version of section 596A of ICTA there is no requirement for the scheme income and gains to be brought into charge to tax.

3696.Section 394B derives from subsections (6) and (7) of the original version of section 596A of ICTA. In the original version of section 596A those subsections deal with a benefit that is also an amount taxed by paragraph 1 of the charge to income tax under Schedule E in section 19(1) of ICTA. Subsection (6) provides that the paragraph 1 charge takes priority. But if the charge under section 596A is greater than the charge as an emolument the additional amount is charged under section 596A.

3697.The new section 394B preserves this effect by comparing the charge under Chapter 2 of Part 6 of this Act with the charge on general earnings.

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