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Part 9 U.K.Pension income

Chapter 1U.K.Introduction

565Structure of Part 9U.K.

The structure of this Part is as follows— Chapter 2—

(a)imposes the charge to tax on pension income, and

(b)provides for deductions to be made from the amount of income chargeable;

Chapters 3 to 15 set out the types of income which are charged to tax under this Part and, for each type of income, identify—

(a)the amount of income chargeable to tax for a tax year, and

(b)the person liable to pay any tax charged;

Chapters 16 to 18 deal with exemptions from the charge to tax (whether under this Part or any other provision).

Chapter 2U.K.Tax on pension income

566Nature of charge to tax on pension income and relevant definitionsU.K.

(1)The charge to tax on pension income under this Part is a charge to tax on that income excluding any exempt income.

(2)Pension income” means the pensions, annuities and income of other types to which the provisions listed in subsection (4) apply.

This definition applies for the purposes of the Tax Acts.

(3)Exempt income” means pension income on which no liability to income tax arises as a result of any provision of Chapters 16 to 18 of this Part.

This definition applies for the purposes of this Part.

(4)These are the provisions referred to in subsection (2)—

ProvisionIncomeChapter (of this Part)
Section 569United Kingdom pensionsChapter 3
Section 573Foreign pensionsChapter 4
Section 577United Kingdom social security pensionsChapter 5
Section 580Pensions or annuities from approved retirement benefits schemesChapter 6
Section 583

Unauthorised payments from—

(a)

approved retirement benefits schemes, or

(b)

former approved superannuation funds (see section 593)

Chapter 6
Section 590Annuities paid under former approved superannuation fundsChapter 7
Section 595Annuities from approved personal pension schemesChapter 8
Section 598Income withdrawals under approved personal pension arrangementsChapter 8
Section 601Unauthorised personal pension paymentsChapter 8
Section 605Annuities under retirement annuity contractsChapter 9
Section 609Annuities for the benefit of dependantsChapter 10
Section 610Annuities under sponsored superannuation schemesChapter 10
Section 611Annuities in recognition of another’s servicesChapter 10
Section 615Certain overseas government pensions paid in the United KingdomChapter 11
Section 619The House of Commons Members' FundChapter 12
Section 623Return of surplus employee additional voluntary contributionsChapter 13
Section 629Pre-1973 pensions paid under OPA 1973Chapter 14
Section 633Voluntary annual paymentsChapter 15

567Amount charged to taxU.K.

(1)The amount of pension income which is charged to tax under this Part for a particular tax year is as follows.

(2)In relation to each pension, annuity or other item of pension income, the amount charged to tax is the “net taxable pension income” for the tax year.

(3)The net taxable pension income for a pension, annuity or other item of pension income for a tax year is given by the formula—

where—

TPI means the amount of taxable pension income for that pension, annuity or item of pension income for that year (see subsection (4)), and

DPI means the total amount of any deductions allowed from the pension, annuity or item of pension income (see subsection (5)).

(4)For the purposes of this Act—

(a)the amount of taxable pension income for a pension, annuity or other item of pension income for a tax year is determined in accordance with Chapters 3 to 15 of this Part (which contain provisions relating to this amount for each type of pension income); and

(b)in determining the amount of taxable pension income for a pension, annuity or other item of pension income, any exempt income is to be excluded.

(5)The deductions allowed from a pension, annuity or other item of pension income are those under—

568Person liable for taxU.K.

For the provision identifying which person is liable for any tax charged under this Part on a pension, annuity or other item of pension income, see Chapters 3 to 15.

Chapter 3U.K.United Kingdom pensions: general rules

569United Kingdom pensionsU.K.

(1)This section applies to any pension paid by or on behalf of a person who is in the United Kingdom.

(2)But this section does not apply to a pension if any provision of Chapters 5 to 14 of this Part applies to it.

(3)For pensions paid by or on behalf of a person who is outside the United Kingdom, see Chapter 4 of this Part.

570“Pension”: interpretationU.K.

In this Chapter “pension” includes a pension which is paid voluntarily or is capable of being discontinued.

571Taxable pension incomeU.K.

If section 569 applies, the taxable pension income for a tax year is the full amount of the pension accruing in that year irrespective of when any amount is actually paid.

572Person liable for taxU.K.

If section 569 applies, the person liable for any tax charged under this Part is the person receiving or entitled to the pension.

Chapter 4U.K.Foreign pensions: general rules

573Foreign pensionsU.K.

(1)This section applies to any pension paid by or on behalf of a person who is outside the United Kingdom to a person who is resident in the United Kingdom.

(2)But this section does not apply to a pension if any provision of Chapters 5 to 14 of this Part applies to it.

(3)For pensions paid by or on behalf of a person who is in the United Kingdom, see Chapter 3 of this Part.

574“Pension”: interpretationU.K.

(1)For the purposes of this Chapter “pension” includes a pension which is paid voluntarily, or is capable of being discontinued, if conditions A and B are met.

(2)Condition A is that the pension is paid to—

(a)a former employee or a former office-holder,

(b)the widow or widower of a former employee or a former office-holder, or

(c)any child, relative or dependant of a former employee or a former office-holder.

(3)Condition B is that the pension is paid by or on behalf of—

(a)the person—

(i)who employed the former employee, or

(ii)under whom the former office-holder held the office, or

(b)the successors of that person.

(4)In this section “office” includes in particular any position which has an existence independent of the person who holds it and may be filled by successive holders.

575Taxable pension incomeU.K.

(1)If section 573 applies, the taxable pension income for a tax year is the amount on which tax would be chargeable if the pension were charged to tax under Case V of Schedule D for that year (see in particular the provisions of ICTA listed in subsection (2)).

(2)Those provisions of ICTA are—

(a)sections 65 and 68 (calculation of the amount of the income on which tax is to be charged in the tax year);

(b)section 584 (relief for unremittable overseas income);

(c)section 585 (relief on delayed remittances).

576Person liable for taxU.K.

If section 573 applies, the person liable for any tax charged under this Part is the person receiving or entitled to the pension.

Chapter 5U.K.United Kingdom social security pensions

577United Kingdom social security pensionsU.K.

(1)This section applies to—

(2)In this section—

(3)In subsection (2), in paragraph (b) of the definition of state pension, the reference to section 48 of SSCB(NI)A 1992 is a reference to the section 48 inserted by paragraph 3(1) of Schedule 2 to the Pensions (Northern Ireland) Order 1995 (S.I. 1995/3213 (N.I. 22)).

(4)Chapter 17 of this Part provides a partial exemption for a pension to which this section applies in respect of any part of the pension which is attributable to an increase in respect of a child (see section 645).

578Taxable pension incomeU.K.

If section 577 applies, the taxable pension income for a tax year is the full amount of the pension, benefit or allowance accruing in that year irrespective of when any amount is actually paid.

579Person liable for taxU.K.

If section 577 applies, the person liable for any tax charged under this Part is the person receiving or entitled to the pension, benefit or allowance.

Chapter 6U.K.Approved retirement benefits schemes

Pensions and annuitiesU.K.

580Pensions and annuitiesU.K.

This section applies to—

(a)any pension or annuity paid under a retirement benefits scheme which is either approved or being considered for approval, and

(b)any annuity acquired using funds held for the purposes of a retirement benefits scheme which is either approved or being considered for approval.

581Taxable pension incomeU.K.

If section 580 applies, the taxable pension income for a tax year is the full amount of the pension or annuity accruing in that year irrespective of when any amount is actually paid.

582Person liable for taxU.K.

If section 580 applies, the person liable for any tax charged under this Part is the person receiving or entitled to the pension or annuity.

Unauthorised paymentsU.K.

583Unauthorised paymentsU.K.

(1)This section applies to a payment if conditions A, B and C are met.

(2)But this section does not apply to a payment to which section 623 applies.

(3)Condition A is that the payment—

(a)is made out of funds which are held for the purposes of an approved retirement benefits scheme (“the paying scheme”), but

(b)is not expressly authorised—

(i)by the rules of the paying scheme, or

(ii)by virtue of paragraph 33 of Schedule 6 to FA 1989.

(4)Condition B is that the payment is not made in the course of payment of a pension or annuity.

(5)Condition C is that the payment is made to or for the benefit of—

(a)an employee, or

(b)an ex-spouse of an employee.

(6)A payment to which this section applies is not to be charged to tax under—

(a)section 598 or 599 of ICTA, or

(b)the Regulations mentioned in paragraph 8 of Schedule 3 to FA 1971.

(7)In this section “payment” includes—

(a)a transfer of assets, and

(b)any other transfer of money’s worth.

584Taxable pension incomeU.K.

If section 583 applies, the taxable pension income for a tax year is the total amount or value of the payments made in that year.

585Person liable for taxU.K.

If section 583 applies, the person liable for any tax charged under this Part is the person mentioned in condition C in section 583(5) to whom, or for whose benefit, the payment is made.

Interpretation etc.U.K.

586Meaning of “retirement benefits scheme” etc.U.K.

(1)In this Chapter—

(2)Any reference in this Chapter to a pension or annuity paid under a retirement benefits scheme includes a reference to a pension or annuity paid under a contract which—

(a)is made for purposes of the scheme, and

(b)is made between—

(i)the administrator of the scheme,

(ii)the employer, or

(iii)the employee or an ex-spouse of the employee,

and a third party.

(3)In subsection (2) the reference to the employer is a reference to the person who is the employer in relation to the scheme.

(4)In subsection (2)(b)(i) “administrator of the scheme” is to be construed in accordance with section 611AA of ICTA.

(5)References in this Chapter to approved retirement benefits schemes are extended by section 587 (marine pilots' benefit fund).

587Application to marine pilots' benefit fundU.K.

(1)In this Chapter the expression “approved retirement benefits scheme” includes a marine pilots' benefit fund which is approved by the Board of Inland Revenue under section 607 of ICTA for the purposes of Chapter 1 of Part 14 of ICTA.

(2)In any case where the paying scheme for the purposes of section 583(3) is a pilots' benefit fund, the references in section 583(5) to an employee are to be read as references to a member or former member of the fund.

(3)In this section “marine pilots' benefit fund” means—

(a)a fund established under section 15(1)(i) of the Pilotage Act 1983 (c. 21), or

(b)any scheme supplementing or replacing any such fund.

588Meaning of “employee” and “ex-spouse”U.K.

(1)In this Chapter—

(2)For the purposes of the definition of “employee” in subsection (1), “director”, in relation to a company, includes—

(a)in the case of a company the affairs of which are managed by a board of directors or similar body, a member of that board or body,

(b)in the case of a company the affairs of which are managed by a single director or similar person, that person,

(c)in the case of a company the affairs of which are managed by the members themselves, a member of that company,

and includes a person who is to be or has been a director.

589RegulationsU.K.

The Board of Inland Revenue may make regulations generally for the purpose of carrying the preceding provisions of this Chapter into effect.

Chapter 7U.K.Former approved superannuation funds

AnnuitiesU.K.

590AnnuitiesU.K.

This section applies to—

(a)any annuity paid under a former approved superannuation fund, and

(b)any annuity acquired using funds held for the purposes of a former approved superannuation fund.

591Taxable pension incomeU.K.

If section 590 applies, the taxable pension income for a tax year is the full amount of the annuity paid in that year.

592Person liable for taxU.K.

If section 590 applies, the person liable for any tax charged under this Part is the person receiving or entitled to the annuity.

Unauthorised paymentsU.K.

593Unauthorised payments: application of section 583U.K.

(1)Section 583 applies to a payment if—

(a)the payment is made out of funds which are held for the purposes of a former approved superannuation fund (“the paying fund”), but

(b)it is not expressly authorised—

(i)by the rules of the paying fund, or

(ii)by virtue of paragraph 33 of Schedule 6 to FA 1989, and

(c)conditions B and C in section 583(4) and (5) are met.

(2)But section 583 does not apply to a payment to which section 623 applies.

(3)In this section “payment” includes—

(a)a transfer of assets, and

(b)any other transfer of money’s worth.

(4)If section 583 applies to a payment by virtue of this section, sections 584, 585 and 588 apply accordingly.

InterpretationU.K.

594Meaning of “former approved superannuation fund”U.K.

(1)In this Chapter “former approved superannuation fund” means any fund which immediately before 6th April 1980 was an approved superannuation fund for the purposes of section 208 of ICTA 1970.

(2)But a fund is not a former approved superannuation fund if any of the following things has happened since 5th April 1980—

(a)the fund has been approved by the Board of Inland Revenue for the purposes of Chapter 2 of Part 2 of FA 1970,

(b)the fund has been approved by the Board for the purposes of Chapter 1 of Part 14 of ICTA, or

(c)any sum has been paid to the fund by way of contribution.

Chapter 8U.K.Approved personal pension schemes

AnnuitiesU.K.

595AnnuitiesU.K.

This section applies to any annuity acquired using funds held for the purposes of an approved personal pension scheme.

596Taxable pension incomeU.K.

If section 595 applies, the taxable pension income for a tax year is the full amount of the annuity received in that year.

597Person liable for taxU.K.

If section 595 applies, the person liable for any tax charged under this Part is the person receiving or entitled to the annuity.

Income withdrawalsU.K.

598Income withdrawalsU.K.

This section applies to any income withdrawal under approved personal pension arrangements.

599Taxable pension incomeU.K.

If section 598 applies, the taxable pension income for a tax year is the total amount of the income withdrawals made in that year.

600Person liable for taxU.K.

If section 598 applies, the person liable for any tax charged under this Part is the person receiving or entitled to the income.

Unauthorised personal pension paymentsU.K.

601Unauthorised personal pension paymentsU.K.

(1)This section applies to any unauthorised personal pension payment.

(2)In this section “personal pension payment” means a payment which—

(a)is made out of funds which are or have been held for the purposes of a personal pension scheme (“the paying scheme”), and

(b)is made to or for the benefit of an individual who has made personal pension arrangements in accordance with the paying scheme (“the individual’s arrangements”).

(3)For the purposes of this section a personal pension payment is unauthorised if any of conditions A, B and C are met.

(4)Condition A is that—

(a)the paying scheme and the individual’s arrangements are both approved at the time the payment is made, but

(b)the payment is not expressly authorised by the rules of the paying scheme.

(5)Condition B is that—

(a)the paying scheme is not approved at the time the payment is made, and

(b)at the time the scheme was last approved, the payment would not have been expressly authorised under the scheme’s rules.

(6)Condition C is that—

(a)the individual’s arrangements are not approved at the time the payment is made, and

(b)at the time the arrangements were last approved, the payment would not have been expressly authorised under the arrangements.

(7)In this section “payment” includes—

(a)a transfer of assets, and

(b)any other transfer of money’s worth.

602Taxable pension incomeU.K.

If section 601 applies, the taxable pension income for a tax year is the total amount or value of the payments made in that year.

603Person liable for taxU.K.

If section 601 applies, the person liable for any tax charged under this Part is the individual who made the arrangements mentioned in section 601(2)(b) to whom or for whose benefit the payment is made, whether or not the individual is the recipient of the payment.

InterpretationU.K.

604Meaning of “personal pension scheme” and related expressionsU.K.

In this Chapter the following expressions have the same meaning as in Chapter 4 of Part 14 of ICTA (see section 630(1) of ICTA)—

(a)“approved”;

(b)“income withdrawal”;

(c)“personal pension arrangements”;

(d)“personal pension scheme”.

Chapter 9U.K.Retirement annuity contracts

605AnnuitiesU.K.

This section applies to any annuity paid under a retirement annuity contract.

606Meaning of “retirement annuity contract”U.K.

In this Chapter “retirement annuity contract” means—

(a)an annuity contract or a trust scheme approved by the Board of Inland Revenue under section 620 of ICTA (qualifying premiums) or under section 621 of ICTA (other approved contracts), or

(b)a substituted contract within the meaning of section 622(3) of ICTA (substituted retirement annuity contracts).

607Taxable pension incomeU.K.

If section 605 applies, the taxable pension income for a tax year is the full amount of the annuity arising in that year.

608Person liable for taxU.K.

If section 605 applies, the person liable for any tax charged under this Part is the person receiving or entitled to the annuity.

Chapter 10U.K.Other employment-related annuities

609Annuities for the benefit of dependantsU.K.

(1)This section applies to any annuity which was granted for consideration consisting in whole or in part of sums which satisfied the conditions for relief under section 273 of ICTA (obligatory contributions to secure an annuity for the benefit of dependants).

(2)But this section applies to an annuity which arises from a source outside the United Kingdom only if it is paid to a person resident in the United Kingdom.

610Annuities under sponsored superannuation schemesU.K.

(1)This section applies to—

(a)any annuity paid under a sponsored superannuation scheme, and

(b)any annuity acquired using funds held for the purposes of a sponsored superannuation scheme.

(2)But this section applies to an annuity which arises from a source outside the United Kingdom only if it is paid to a person resident in the United Kingdom.

(3)This section does not apply to an annuity to which any provision of Chapter 6, 7, 8 or 9 of this Part applies.

(4)In this section “sponsored superannuation scheme” has the meaning given by section 624(1) of ICTA.

611Annuities in recognition of another’s servicesU.K.

(1)This section applies to any annuity purchased by any person in recognition of another person’s services in any office or employment.

(2)But this section applies to an annuity which arises from a source outside the United Kingdom only if it is paid to a person resident in the United Kingdom.

(3)This section does not apply to an annuity to which any provision of Chapter 6, 7, 8 or 9 of this Part applies.

(4)For the purposes of this section “office” includes in particular any position which has an existence independent of the person who holds it and may be filled by successive holders.

612Taxable pension income: UK annuitiesU.K.

(1)The taxable pension income for an annuity to which section 609, 610 or 611 applies is determined in accordance with this section if the annuity arises from a source in the United Kingdom.

(2)The taxable pension income for a tax year is the full amount of the annuity arising in that year.

613Taxable pension income: foreign annuitiesU.K.

(1)The taxable pension income for an annuity to which section 609, 610 or 611 applies is determined in accordance with this section if the annuity arises from a source outside the United Kingdom.

(2)The taxable pension income for a tax year is the amount on which tax would be chargeable if the annuity were charged to tax under Case V of Schedule D for that year (see in particular the provisions of ICTA listed in subsection (3)).

(3)Those provisions of ICTA are—

(a)sections 65 and 68 (calculation of the amount of the income on which tax is to be charged in the tax year);

(b)section 584 (relief for unremittable overseas income);

(c)section 585 (relief on delayed remittances).

(4)In the application of sections 65(2) and 585(2) of ICTA in relation to the calculation of the taxable pension income for the purposes of this section, any reference to income arising from a pension is a reference to the annuity.

614Person liable for taxU.K.

If section 609, 610 or 611 applies, the person liable for any tax charged under this Part is the person receiving or entitled to the annuity.

Chapter 11U.K.Certain overseas government pensions paid in the UK

615Certain overseas government pensions paid in the United KingdomU.K.

(1)This section applies to a pension if conditions A, B and C are met.

(2)Condition A is that the pension—

(a)is payable—

(i)to a person who has been employed in overseas government service, or

(ii)to the widow, widower, child, relative or dependant of a person who has been employed in overseas government service, and

(b)is payable in respect of that service.

(3)Condition B is that the pension—

(a)is payable in the United Kingdom, and

(b)is payable to a person who is resident in the United Kingdom.

(4)Condition C is that the pension is payable by or on behalf of the government of—

(a)a country which forms part of Her Majesty’s dominions,

(b)any other country which is for the time being mentioned in Schedule 3 to the British Nationality Act 1981 (c. 61), or

(c)any territory under Her Majesty’s protection.

(5)But condition C is not met if the pension is payable out of the public revenue of the United Kingdom or Northern Ireland.

(6)In condition A the references to a person being employed in overseas government service are to the person being employed outside the United Kingdom—

(a)in the service of the Crown, or

(b)in service under the government of a country or territory which falls within subsection (4).

(7)In this Chapter “pension” includes a pension which is paid voluntarily or is capable of being discontinued.

616Taxable pension incomeU.K.

If section 615 applies, the taxable pension income for a tax year is the full amount of the pension accruing in that year irrespective of when any amount is actually paid.

617Deduction allowed from taxable pension incomeU.K.

A deduction of 10% is allowed from an amount of taxable pension income determined under section 616 (see section 567).

618Person liable for taxU.K.

If section 615 applies, the person liable for any tax charged under this Part is the person receiving or entitled to the pension.

Chapter 12U.K.House of Commons Members' Fund

619The House of Commons Members' FundU.K.

This section applies to any periodical payment granted out of—

(a)the House of Commons Members' Fund,

(b)sums appropriated from that Fund, or

(c)income from sums appropriated from that Fund.

620Meaning of “House of Commons Members' Fund”U.K.

In this Chapter “House of Commons Members' Fund” means the fund with that name established by section 1 of the House of Commons Members' Fund Act 1939 (c. 49).

621Taxable pension incomeU.K.

If section 619 applies, the taxable pension income for a tax year is the total amount of the payments made in that year.

622Person liable for taxU.K.

If section 619 applies, the person liable for any tax charged under this Part is the person receiving or entitled to the payments.

Chapter 13U.K.Return of surplus employee additional voluntary contributions

623Return of surplus employee additional voluntary contributionsU.K.

(1)This section applies to a payment if conditions A, B and C are met.

(2)Condition A is that the payment is made out of funds which are or have been held for the purposes of—

(a)a scheme which is or has been an exempt approved scheme, or

(b)a relevant statutory scheme established under a public general Act.

(3)Condition B is that the payment is made under a duty to return surplus funds.

(4)Condition C is that the payment is made to or for the benefit of an employee.

(5)A payment to which this section applies is not to be charged to tax under—

(a)section 598 or 599 of ICTA, or

(b)the Regulations mentioned in paragraph 8 of Schedule 3 to FA 1971.

(6)In this section “payment” includes—

(a)a transfer of assets, and

(b)any other transfer of money’s worth.

624Taxable pension incomeU.K.

If section 623 applies, the taxable pension income for a tax year is the amount equal to the total amount or value of the payments made in that year, grossed up by reference to the basic rate for that year.

625Person liable for taxU.K.

If section 623 applies, the person liable for any tax charged under this Part is the employee mentioned in condition C in section 623(4) to whom or for whose benefit the payment is made.

626Income tax treated as paidU.K.

(1)An employee who is liable for the tax charged on a payment to which section 623 applies is treated as having paid income tax at the basic rate on the amount chargeable.

(2)The income tax treated as paid under subsection (1) is not repayable.

627Meaning of “grossing up”U.K.

(1)In section 624 “grossing up” by reference to the basic rate means calculating the amount (“the gross amount”) which after deduction of income tax at the basic rate would equal the amount to be grossed up (“the net amount”).

(2)The gross amount is the sum of the net amount and the tax deducted.

628InterpretationU.K.

(1)In this Chapter—

(2)For the purposes of the definition of “employee” in subsection (1), “director”, in relation to a company, includes—

(a)in the case of a company the affairs of which are managed by a board of directors or similar body, a member of that board or body,

(b)in the case of a company the affairs of which are managed by a single director or similar person, that person,

(c)in the case of a company the affairs of which are managed by the members themselves, a member of that company,

and includes a person who is to be or has been a director.

(3)If section 623 applies to a payment made out of funds which are or have been held for the purposes of a relevant statutory scheme established under a public general Act, any reference in this Chapter to an employee includes references to a person who holds an office, to a person who is to hold an office and to a person who has ceased to hold an office.

This is without prejudice to subsection (1).

(4)For the purposes of subsection (3) “office” includes in particular any position which has an existence independent of the person who holds it and may be filled by successive holders.

Chapter 14U.K.Pre-1973 pensions paid under the Overseas Pensions Act 1973

629Pre-1973 pensions paid under the Overseas Pensions Act 1973U.K.

(1)This section applies to a pension if—

(a)it is paid under section 1 of OPA 1973 (whether or not paid out of a fund established under a scheme made under that section),

(b)it is a pre-1973 pension, and

(c)it is paid to—

(i)the original pensioner, or

(ii)the widow or widower of the original pensioner.

(2)But this section does not apply to a part of a pension which is paid because the Pensions (Increase) Act 1971 (c. 56) applies to it (and accordingly section 569 applies to that part of the pension).

(3)Chapter 18 of this Part provides an exemption where a pension to which this section applies is paid to a person who is not resident in the United Kingdom (see sections 647 and 651).

630InterpretationU.K.

(1)For the purposes of this Chapter a person is the “original pensioner” in relation to a pension if—

(a)the pension is payable by virtue of the person’s service, and

(b)the person retired from that service before 6th April 1973.

(2)For the purposes of this Chapter a pension is a “pre-1973 pension” if, immediately before 6th April 1973—

(a)the pension was payable to—

(i)the original pensioner, or

(ii)the widow or widower of the original pensioner, and

(b)that person was resident in the United Kingdom.

631Taxable pension incomeU.K.

(1)If section 629 applies, the taxable pension income for a tax year is the amount on which tax would be chargeable if the pension were charged to tax under Case V of Schedule D for that year (see in particular the provisions of ICTA listed in subsection (2)).

(2)Those provisions of ICTA are sections 65 and 68 (calculation of the amount of the income on which tax is to be charged in the tax year).

632Person liable for taxU.K.

If section 629 applies, the person liable for any tax charged under this Part is the person receiving or entitled to the pension.

Chapter 15U.K.Voluntary annual payments

633Voluntary annual paymentsU.K.

(1)This section applies to an annual payment which—

(a)is paid voluntarily, or

(b)is capable of being discontinued,

if conditions A and B are met.

(2)Condition A is that the payment is paid to—

(a)a former employee or a former office-holder,

(b)the widow or widower of a former employee or former office-holder, or

(c)any child, relative or dependant of a former employee or a former office-holder.

(3)Condition B is that the payment is paid by or on behalf of—

(a)the person—

(i)who employed the former employee, or

(ii)under whom the former office-holder held the office, or

(b)the successors of that person.

(4)But this section applies to a payment which is paid by or on a behalf of a person who is outside the United Kingdom only if it is paid to a person resident in the United Kingdom.

(5)In this section “office” includes in particular any position which has an existence independent of the person who holds it and may be filled by successive holders.

634Taxable pension income: UK voluntary annual paymentsU.K.

(1)The taxable pension income for payments to which section 633 applies is determined in accordance with this section if the payments are made by or on behalf of a person who is in the United Kingdom.

(2)The taxable pension income for a tax year is the full amount of the payments accruing in that year irrespective of when any amount is actually paid.

635Taxable pension income: foreign voluntary annual paymentsU.K.

(1)The taxable pension income for payments to which section 633 applies is determined in accordance with this section if the payments are made by or on behalf of a person who is outside the United Kingdom.

(2)The taxable pension income for a tax year is the amount on which tax would be chargeable if the pension were charged to tax under Case V of Schedule D for that year (see in particular the provisions of ICTA listed in subsection (3)).

(3)Those provisions of ICTA are—

(a)sections 65 and 68 (calculation of the amount of the income on which tax is to be charged in the tax year);

(b)section 584 (relief for unremittable overseas income);

(c)section 585 (relief on delayed remittances).

636Person liable for taxU.K.

If section 633 applies, the person liable for any tax charged under this Part is the person receiving or entitled to the payment.

Chapter 16U.K.Exemption for certain lump sums

637Exemption for lump sums provided under certain pension schemes etc.U.K.

(1)No liability to income tax arises on a lump sum provided under—

(a)approved personal pension arrangements,

(b)a tax-exempt pension scheme, or

(c)a retirement annuity contract.

(2)But subsection (1)(b) applies to a lump sum paid in compensation for loss of office or employment, or for loss or diminution of earnings, only if—

(a)the payment is properly regarded as earned by past services, or

(b)the loss of office or employment, or the loss or diminution of earnings, is due to ill-health.

(3)Subsection (1)(b) does not apply to a lump sum to which section 583 (approved retirement benefits schemes: unauthorised payments) or section 623 (return of surplus AVCs) applies.

This includes cases where section 583 applies by virtue of section 593.

(4)Subsection (1)(c) applies to a lump sum only if it is provided in consequence of a right which meets the conditions in paragraphs (a) and (b) of section 620(3) of ICTA.

(5)In this section—

(6)In this section “tax-exempt pension scheme” means—

(a)a retirement benefits scheme which is—

(i)an approved scheme,

(ii)a relevant statutory scheme, or

(iii)a scheme set up by a government outside the United Kingdom for the benefit, or primarily for the benefit, of its employees, or

(b)any such scheme or fund as was described in section 221(1) and (2) of ICTA 1970 (schemes to which payments could be made without charge to tax under section 220 of that Act).

(7)For the purposes of subsection (6)—

Chapter 17U.K.Exemptions: any taxpayer

638Awards for braveryU.K.

(1)No liability to income tax arises on a pension or annuity if it is paid to the holder of an award for bravery in respect of the award.

(2)In this section “award for bravery” means—

639Pensions in respect of death due to military or war serviceU.K.

[F1(1)]No liability to income tax arises on these pensions and allowances—

(a)a pension or allowance payable by or on behalf of [F2the Ministry of Defence] under so much of [F3instrument specified in subsection (2),] as relates to death due to—

(i)service in the armed forces of the Crown,

(ii)wartime service in the merchant navy, or

(iii)war injuries;

(b)a pension or allowance—

(i)payable by the Ministry of Defence in respect of death due to peacetime service in the armed forces of the Crown before 3rd September 1939, and

(ii)payable at rates, and subject to conditions, similar to those of a pension within paragraph (a);

(c)a pension or allowance—

(i)payable under the law of a country other than the United Kingdom, and

(ii)of a character substantially similar to a pension within paragraph (a) or (b).

[F4(2)The instruments referred to in subsection (1)(a) are—

(3)The Treasury may by order amend subsection (2).]

Textual Amendments

F1S. 639 renumbered as s. 639(1) (retrospectively) by Finance Act 2005 (c. 7), s. 19(3)(8)

F2Words in s. 639(a) substituted (retrospectively) by Finance Act 2005 (c. 7), s. 19(3)(a)(8)

F3Words in s. 639(a) substituted (retrospectively) by Finance Act 2005 (c. 7), s. 19(3)(b)(8)

F4S. 639(2)(3) inserted (retrospectively) by Finance Act 2005 (c. 7), s. 19(3)(8)

640Exemption under section 639 where income withheldU.K.

(1)This section applies if—

(a)an individual is entitled to both of the following—

(i)a pension or allowance mentioned in section 639 (“pension A”), and

(ii)any other pension or allowance (“pension B”), and

(b)the whole or a part of pension A is withheld because of the individual’s entitlement to pension B.

(2)In such a case, an amount of pension B equal to the withheld amount of pension A is treated for the purposes of section 639 as part of pension A.

641Wounds and disability pensionsU.K.

(1)No liability to income tax arises on—

(a)a wounds pension granted to a member of the armed forces of the Crown;

(b)retired pay of a disabled officer granted on account of medical unfitness attributable to or aggravated by service in the armed forces of the Crown;

(c)a disablement or disability pension granted to a member of the armed forces of the Crown, other than a commissioned officer, on account of medical unfitness attributable to or aggravated by service in the armed forces of the Crown;

(d)a disablement pension granted to a person who has been employed in the nursing services of any of the armed forces of the Crown on account of medical unfitness attributable to or aggravated by service in the armed forces of the Crown;

(e)an injury or disablement pension payable under any scheme made under—

(i)the Injuries in War (Compensation) Act 1914 (c. 30), or

(ii)the Injuries in War (Compensation) Act 1914 (Session 2) (5 & 6 Geo. 5 c. 18);

(f)an injury or disablement pension payable under any War Risks Compensation Scheme for the Mercantile marine;

(g)a pension—

(i)granted to a person on account of disablement, and

(ii)payable under any scheme made under section 3, 4 or 5 of the Pensions (Navy, Army, Air Force and Mercantile Marine) Act 1939 (c. 83).

(2)But if the Secretary of State certifies that a pension or retired pay of a kind listed in subsection (1) is only partly attributable to disablement or disability, that subsection applies only to the part attributable to disablement or disability.

642Compensation for National-Socialist persecutionU.K.

No liability to income tax arises on a pension or annuity which is payable under any special provision for victims of National-Socialist persecution which is made by the law of—

(a)the Federal Republic of Germany or any part of it, or

(b)Austria.

643Malawi, Trinidad and Tobago and Zambia government pensionsU.K.

(1)No liability to income tax arises on—

(a)a Malawi government pension,

(b)a Trinidad and Tobago government pension, or

(c)a Zambia government pension,

if conditions A, B and C are met.

(2)Condition A is that the pension is paid to—

(a)the original pensioner, or

(b)the widow or widower of the original pensioner.

(3)Condition B is that the pension is now paid under section 1 of OPA 1973 (whether or not it is paid out of a fund established under a scheme made under that section).

(4)Condition C is that, at the time the pension is paid, provision is made by double taxation relief arrangements which would exempt the pension from income tax in the United Kingdom if the pension were still paid by the relevant government (rather than under section 1 of OPA 1973).

(5)Subsection (1) does not apply to any part of a pension which is paid because the Pensions (Increase) Act 1971 (c. 56) applies to it.

(6)In this section—

(7)For the purposes of this section a person is the “original pensioner” in relation to a pension if—

(a)the pension is payable by virtue of the person’s service, and

(b)the person retired from that service before 6th April 1973.

644Pensions payable where employment ceased due to disablementU.K.

(1)No liability to income tax arises on the exempt amount of a disablement pension.

(2)For the purposes of this section a pension is a “disablement pension” if—

(a)the pension is payable because a person has ceased to hold an employment or office because of disablement, and

(b)that disablement is attributable to—

(i)performance of the duties of the employment or office, or

(ii)war injuries.

But “disablement pension” does not include any pension to which section 580 or 590 applies.

(3)The exempt amount of a disablement pension is determined in accordance with the following steps.

Step 1

Determine what pension would have been payable if—

(a)the person had ceased to hold the employment or office because of the disablement mentioned in subsection (2)(a), but

(b)the disablement had not been attributable to—

(i) performance of the duties of the employment or office, or

(ii) war injuries.

Step 2

If no pension would have been payable, the exempt amount is the amount of the disablement pension.

If a pension of a smaller amount than the disablement pension would have been payable, the exempt amount is the amount by which the disablement pension exceeds the smaller amount.

In any other case, the exempt amount is nil.

(4)For the purposes of this section “office” includes in particular any position which has an existence independent of the person who holds it and may be filled by successive holders.

645Social security pensions: increases in respect of childrenU.K.

(1)No liability to income tax arises on a part of a social security pension which is attributable to an increase in respect of a child.

(2)In this section “social security pension” means—

(a)any pension, benefit or allowance to which section 577 applies, and

(b)any pension, benefit or allowance which—

(i)is payable under the law of a country or territory outside the United Kingdom, and

(ii)is substantially similar in character to a pension, benefit or allowance to which section 577 applies.

646Former miners etc: coal and allowances in lieu of coalU.K.

(1)No liability to income tax arises on—

(a)the provision of coal or smokeless fuel—

(i)to a former colliery worker, or

(ii)to the widow or widower of a former colliery worker, or

(b)any allowance paid to such a person in lieu of such provision,

if the condition in subsection (2) is met.

(2)That condition is that the amount of coal or fuel provided or in respect of which the allowance is paid does not substantially exceed the amount reasonably required for personal use.

(3)That condition is assumed to be met unless the contrary is shown.

(4)In this section “former colliery worker” means—

(a)any person who has ceased to be employed as a coal miner, or

(b)any other person who has ceased to be employed at or about a colliery otherwise than in clerical, administrative or technical work.

Chapter 18U.K.Exemptions: Non-UK resident taxpayers

647Introduction and meaning of “foreign residence condition” etc.U.K.

(1)The provisions of this Part provide that no liability to income tax arises on certain kinds of pensions if the foreign residence condition is met.

(2)The foreign residence condition is met in relation to a pension if the pension is payable to a person who is not resident in the United Kingdom.

(3)For the purposes of the foreign residence condition, a person is taken to be not resident in the United Kingdom only if—

(a)a person makes a claim to the Board of Inland Revenue that the person is not resident, and

(b)the Board is satisfied that the person is not resident.

(4)In this Chapter “pension” includes—

(a)a gratuity or any sum payable on or in respect of death,

(b)a return of contributions, and

(c)any interest or other addition included in a return of contributions.

648The Central African Pension FundU.K.

(1)No liability to income tax arises on a pension which is paid from the Central African Pension Fund if the foreign residence condition is met.

(2)In this section “the Central African Pension Fund” means the fund established under that name by section 24 of the Federation of Rhodesia and Nyasaland (Dissolution) Order in Council 1963 (S.I. 1963/2085).

649Commonwealth government pensionsU.K.

(1)No liability to income tax arises on a pension paid out of a fund which is established—

(a)in the United Kingdom,

(b)by a Commonwealth government,

(c)for the sole purpose of providing pensions payable in respect of service under that government,

if the foreign residence condition is met.

(2)In this section “Commonwealth government” means—

(a)the government of a territory or country mentioned in subsection (3),

(b)the government of any part of a territory or country mentioned in subsection (3), or

(c)a government constituted for two or more of the territories or countries mentioned in subsection (3).

(3)The territories and countries referred to in subsection (2) are—

(a)a country mentioned in Schedule 3 to the British Nationality Act 1981 (c. 61) apart from Australia, Canada, New Zealand, India, Sri Lanka and Cyprus,

(b)an associated state,

(c)a British overseas territory,

(d)a protectorate,

(e)a protected state, and

(f)a United Kingdom trust territory.

(4)In subsection (2)(c) the reference to a government constituted for two or more of the territories or countries mentioned in subsection (3) includes a reference to any authority established for the purpose of providing or administering services which are common to, or relate to matters of common interest to, two or more of those territories or countries.

(5)In subsection (3)(f) “United Kingdom trust territory” means a territory administered by the government of the United Kingdom under the trusteeship system of the United Nations.

650Oversea Superannuation SchemeU.K.

(1)No liability to income tax arises on a pension which is paid under the Oversea Superannuation Scheme (formerly known as the Colonial Superannuation Scheme) if the foreign residence condition is met.

(2)For the purposes of subsection (1) a pension is paid under the Oversea Superannuation Scheme if—

(a)the pension is paid under the Scheme as it has effect (by reason of section 2(4A) of OPA 1973) as a scheme under section 2 of OPA 1973, or

(b)the pension is paid under a scheme which—

(i)the Secretary of State has made under section 2(1) of OPA 1973, and

(ii)corresponds to the Oversea Superannuation Scheme.

651Overseas Pensions Act 1973U.K.

(1)No liability to income tax arises on a pension which is paid under section 1 of OPA 1973 if the foreign residence condition is met.

(2)Subsection (1) applies whether or not the pension is paid out of a fund established under a scheme made under section 1 of OPA 1973.

(3)But subsection (1) does not apply to any part of a pension paid because the Pensions (Increase) Acts apply to it.

(4)In this section “the Pensions (Increase) Acts” means—

(a)the Pensions (Increase) Act 1971 (c. 56), and

(b)any Act passed after that Act for purposes which correspond to the purposes of that Act.

652Overseas Service Act 1958U.K.

(1)No liability to income tax arises on a pension—

(a)which is paid under the authority of the Overseas Service Act 1958 (c. 14), and

(b)which the Secretary of State certifies to be attributable to the employment of a person in the public services of an overseas territory,

if the foreign residence condition is met.

(2)If the Secretary of State certifies that only part of a pension paid under the authority of the 1958 Act is attributable to the employment of a person in the public services of an overseas territory, subsection (1) applies only to that part of the pension.

(3)For the purposes of subsections (1) and (2) a pension is paid under the authority of the 1958 Act if condition A or B is met.

(4)Condition A is that the pension is paid under either of the following—

(a)an order made under section 2 of the 1958 Act, or

(b)section 4(2) of the 1958 Act,

as it has effect (by reason of section 2(3) of OPA 1973) as a scheme under section 2 of OPA 1973.

(5)Condition B is that the pension is paid under a scheme which the Secretary of State—

(a)has made under section 2(1) of OPA 1973, and

(b)has certified to correspond to—

(i)an order made under section 2 of the 1958 Act, or

(ii)section 4(2) of the 1958 Act.

(6)For the purposes of this section, a person is taken to be employed in the public service of an overseas territory at any time when—

(a)the person is employed in any capacity under the government of that territory, or under any municipal or other local authority in it,

(b)the person is employed in circumstances not falling within paragraph (a), by a body corporate established for any public purpose in that territory by an enactment of a legislature empowered to make laws for that territory, or

(c)the person is the holder of a public office in that territory in circumstances not falling within paragraph (a) or (b).

(7)In subsection (6) references to the government of an overseas territory include references to—

(a)a government constituted for two or more overseas territories, and

(b)any authority established for the purpose of providing or administering services which are common to, or relate to matters of common interest to, two or more such territories.

(8)In this section—

653Overseas Service Pensions FundU.K.

(1)No liability to income tax arises on a pension which is paid out of the Overseas Service Pensions Fund if the foreign residence condition is met.

(2)In this section “the Overseas Service Pensions Fund” means the fund with that name established under section 7(1) of the Overseas Aid Act 1966 (c. 21).

(3)In this section “pension” includes not only the things mentioned in section 647(4) but also any sum payable in respect of ill-health.

654The Pensions (India, Pakistan and Burma) Act 1955U.K.

(1)No liability to income tax arises on a pension paid under the authority of the Pensions (India, Pakistan and Burma) Act 1955 (c. 22) if the foreign residence condition is met.

(2)A pension is paid under the authority of the 1955 Act if—

(a)the pension is paid under the 1955 Act as it has effect (by reason of section 2(3) of OPA 1973) as a scheme under section 2 of OPA 1973, or

(b)the pension is paid under a scheme which the Secretary of State—

(i)has made under section 2(1) of OPA 1973, and

(ii)has certified to correspond to the provision made under the 1955 Act.

(3)This section does not apply to any part of a pension paid because the Pensions (Increase) Acts apply to it.

(4)In this section—