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Income Tax (Earnings and Pensions) Act 2003

Section 397: Certain lump sums: calculation of amount taxed by virtue of section 394

1713.This section allows a deduction from the amount of the lump sum that is charged to tax if:

  • any of the profits on the scheme investments are not brought into charge to tax, and;

  • the condition in section 395(3) is satisfied.

1714.The section derives from sections 591D(6) and 596A(9) to (17) of ICTA. It rewrites section 596A(9) as a free-standing provision. See Change 106 in Annex 1.

1715.Subsection (3) gives the amount of the deduction. It is the total of:

  • any contribution the employee has paid, and;

  • any contribution the employer has paid that has been taxed on the employee.

1716.Subsection (3) derives from section 596A(10) and is subject to subsection (4). Subsection (4) applies the formula in subsection (6) if any of the persons listed in subsection (5) has the right to receive, or expectation of receiving, a further lump sum or sums. Subsections (4), (5) and (6) derive from sections 596A(11) to (13) of ICTA.

1717.Subsection (7) prevents double deductions. It derives from section 596A(14) of ICTA.

1718.Subsection (8) derives from the assumptions in section 596A(15) of ICTA.

1719.Subsection (9) derives from section 591D of ICTA. It prevents a claim that the scheme funds have been brought into charge to tax because they have suffered a charge under section 591C of ICTA (cessation of approval: tax on certain schemes).

1720.Subsection (10) gives the meaning of “market value”. It derives from section 596A(17) of ICTA and cross-refers to sections 272 and 273 of TCGA 1992. The reference to section 273 of TCGA 1992 is new. See Note 41 in Annex 2.

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