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Income Tax (Earnings and Pensions) Act 2003

Chapter 3: United Kingdom pensions: general rules
Overview

2279.This Chapter applies to United Kingdom pensions.

Section 569: United Kingdom pensions

2280.This section identifies pensions paid by or on behalf of a person who is in the United Kingdom as pension income. It derives from paragraph 3 of Schedule E (section 19(1) of ICTA) but it also covers payments taxed by paragraph 2 of Schedule E and section 133 of ICTA.

2281.Subsection (1) applies to any pension paid by or on behalf of a person who is in the United Kingdom. It derives from paragraph 3 of Schedule E (section 19(1) of ICTA). The territorial scope in this section is mirrored by section 573 (in Chapter 4), which taxes foreign pensions. That section applies to a pension paid by or on behalf of a person who is outside the United Kingdom. Together these two provisions ensure that all pensions paid by or to persons in the United Kingdom will be taxed.

2282.Subsection (2) limits the scope of the section. It applies only to pensions not identified by one of the specific provisions of the pension income Part. This gives the section the character of a sweep-up provision. Normally a sweep-up provision would come after the specific provisions. But that would not be the right approach here.

2283.One of the objectives of the pension income Part is to remove the overlap that exists in ICTA. Paragraph 3 of Schedule E (section 19(1) of ICTA) imposes a general charge on United Kingdom pensions. But there are also two provisions that impose a specific and overlapping charge on a United Kingdom pension. Section 597 of ICTA imposes a specific charge on pensions paid by approved retirement benefits schemes and paragraph 2 of Schedule E (section 19(1) of ICTA) imposes a specific charge on pensions paid by the Crown.

2284.To remove any overlap the pension income Part needs to identify discrete forms of pension income. The general provision in section 569 is subject to the sections that identify specific forms of pension income. This results in the sweep-up nature of section 569. But despite its sweep-up nature section 569 will apply to many taxpayers. For example, nearly all public sector pensions will be within this section. If the position of the section in the Part is to reflect its importance it needs to come before the sections that apply to specific types of pension income. Also, making the section the first of the provisions that identify pension income gives a natural opening to the pension income Part. It is immediately obvious that all United Kingdom pensions are to be taxed.

2285.Subsection (3) is a signpost to Chapter 4, which gives the general rules for foreign pensions. It is not possible for a pension to be a United Kingdom pension as defined in section 569(1) and a foreign pension as defined in section 573. This is because the qualifying conditions are mutually exclusive.

2286.The pension income Part does not rewrite paragraph 2 of Schedule E (section 19(1) of ICTA). That provision applies to annuities, pensions and stipends payable by the Crown or out of the public revenue. All these forms of income will be taxed in the general charge on United Kingdom pensions in section 569.

2287.“Annuity” in paragraph 2 of Schedule E (section 19(1) of ICTA) is used in the sense of a regular income payment rather than a purchased annuity. Given the wide meaning of “pension” an annuity payable by the Crown is a pension. So it is not necessary for this Act to rewrite a specific charge on annuities payable by the Crown.

2288.The charge on annuities in paragraph 2 of Schedule E (section 19(1) of ICTA) does not apply to any annuity taxed by paragraph (c) of Schedule D Case III (section 18(3) of ICTA). As the pension income Part has not rewritten the charge on annuities in paragraph 2 of Schedule E the reference to paragraph (c) of Case III is redundant. So it is not necessary for this Act to rewrite the reference to paragraph (c) of Schedule D Case III (section 18(3) of ICTA).

2289.Paragraph 2 of Schedule E (section 19(1) of ICTA) imposes a specific charge on a pension payable by the Crown or out of the public revenue. The pension income Part does not retain this specific charge. Either the payment is a pension or it is not. The fact that the payment is made by the Crown cannot make it a pension. A pension paid by or on behalf of a person in the United Kingdom will be taxed by section 569. It is not necessary for this Act to rewrite the specific charge on a pension payable by the Crown or out of the public revenue.

2290.Paragraph 2 of Schedule E (section 19(1) of ICTA) imposes a specific charge on a stipend payable by the Crown or out of the public revenue. A stipend paid by the Crown does not need particular identification. If a payment described as a stipend represents earnings as defined in section 62 it will be taxed as employment income. If the payment described as a stipend is not earnings it will fall within the ordinary meaning of “pension”. So it is not necessary for this Act to rewrite the specific charge on a stipend payable by the Crown or out of the public revenue.

Section 570: “Pension”: interpretation

2291.This section ensures the charge applies to voluntary pensions. It derives from section 133(2) of ICTA.

2292.The scope of section 133(2) of ICTA has been considered in two tax cases. In Johnson v Holleran [1988] 61 TC 433 and Johnson v Farquhar [1991] 64 TC 395 it was held that section 133(2) of ICTA applies for all the purposes of Schedule E and not merely for the purposes of section 133(1).

2293.The effect of the section is that any pension paid by or on behalf of a person in the United Kingdom will be taxed even if there is no contractual right to receive the pension.

Section 571: Taxable pension income

2294.This section sets out the basis of assessment. It identifies the amount of taxable pension income, which feeds into the computation of net taxable pension income in section 567.

2295.The section derives from section 41 of FA 1989. That section provides that income taxed by paragraphs 2 and 3 of Schedule E (section 19(1) of ICTA) and section 133 of ICTA is charged on the amount accruing in the tax year. This means that the charge is calculated on the amount accruing from day to day without regard to when the income is actually paid.

Section 572: Person liable for tax

2296.This section identifies the person chargeable. It is new.

2297.The pension income Part includes income that ICTA taxes under Schedule E and income that ICTA taxes under Schedule D. For income taxed under Schedule D section 59(1) of ICTA identifies the person chargeable as the person “receiving or entitled” to the income.

2298.There is no equivalent of section 59(1) of ICTA for pensions that ICTA taxes under Schedule E. It would be inconsistent to identify a person chargeable for some but not all pension income. The pension income Part avoids this inconsistency. It makes the person liable for tax on pension income the person receiving or entitled to the income in all cases where ICTA did not specify the person chargeable. See Change 135 in Annex 1.

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