Income Tax (Earnings and Pensions) Bill

House of Commons

Session 2002 - 03
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Income Tax (Earnings and Pensions) Bill

Income Tax (Earnings and Pensions) Bill
Part 8 — Former employees: deductions for liabilities
    277

559   Liabilities related to the former employment
For the purposes of this Part each of the following kinds of liability is related
to the former employment—

            A. Liability imposed upon the former employee because he did an act, or failed
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to do an act—
                  (a)                    in his capacity as holder of the former employment, or
                  (b)                    in any other capacity in which he acted in the performance of
the duties of the former employment.

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            B. Liability imposed upon the former employee in connection with any
proceedings relating to, or arising from, a claim that he is subject to a liability
because he did an act, or failed to do an act—
                  (a)                    in his capacity as holder of the former employment, or
                  (b)                    in any other capacity in which he acted in the performance of
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the duties of the former employment.
560   Meaning of “qualifying insurance contract”
     (1)    In section 558 “qualifying insurance contract” means a contract of insurance
which meets conditions A, B, C and D.
     (2)    Condition A is that, so far as the risks insured against are concerned, the
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contract only relates to one or more of the following—
           (a)           the indemnification of a former employee against a liability related to
the former employment,
           (b)           the indemnification of a person against vicarious liability in respect of
a liability related to another person’s employment,
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           (c)           the payment of costs or expenses incurred—
                  (i)                 in connection with a claim that a person is subject to a liability
to which the insurance relates, or
                  (ii)                in connection with any proceedings relating to or arising out of
a claim that a person is subject to a liability to which the
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insurance relates,
           (d)           the indemnification of an employer against loss from a payment made
by the employer to a former employee in respect of—
                  (i)                 a liability related to the former employment, or
                  (ii)                any costs or expenses incurred as mentioned in paragraph (c).
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     (3)    Condition B is that—
           (a)           the period of insurance under the contract does not exceed 2 years or, if
it does, it does so only because of one or more renewals, each for a
period of 2 years or less, and
           (b)           the insured is not required to renew the contract for any period.
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     (4)    Condition C is—
           (a)           that the insured is not entitled under the contract to receive any
payment or other benefit in addition to—
                  (i)                 cover for the risks insured against, and
                  (ii)                any right to renew the contract, or
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Income Tax (Earnings and Pensions) Bill
Part 8 — Former employees: deductions for liabilities
    278

           (b)           if the insured is so entitled, that the part of the premium reasonably
attributable to the entitlement is not a significant part of the whole
premium.
     (5)    Condition D is that the contract is not connected with another contract.
561   Connected contracts
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     (1)    An insurance contract is connected with another contract for the purposes of
section 560 if conditions E and F are met—
           (a)           at the time when both contracts are first in force, or
           (b)           at any time after that time.
     (2)    Condition E is that one of the contracts was entered into—
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           (a)           by reference to the other, or
           (b)           with a view to enabling or facilitating entry into the other on particular
terms.
     (3)    Condition F is that the terms on which one of the contracts was entered into are
significantly different from what they would have been if—
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           (a)           it had not been entered into in anticipation of the other being entered
into, or
           (b)           the other had not also been entered into.
     (4)    If—
           (a)           there is only one such significant difference in terms, and
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           (b)           the contracts meet conditions A, B and C specified in section 560,
            the difference may be disregarded in the following cases.
     (5)    The first case is where the difference is a reduction in premiums under the
contract that is reasonably attributable only to the contract—
           (a)           containing a right to renew, or
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           (b)           being entered into by way of renewal.
     (6)    The second case is where—
           (a)           two or more contracts have been entered into as part of a single
transaction, and
           (b)           the difference is reductions in their premiums that are reasonably
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attributable only to the premium under each of them having been fixed
by reference to the appropriate proportion of the combined premium.
     (7)    In subsection (6) “the combined premium” means the amount that would have
been the total premium under a single contract relating to all the risks covered
by the contracts.
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562   Meaning of “former employee” and “employment”
     (1)    In this Part “former employee” means an individual who has ceased to hold an
employment.
     (2)    In this Part “employment” includes in particular—
           (a)           any employment under a contract of service,
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           (b)           any employment under a contract of apprenticeship, and
           (c)           any employment in the service of the Crown.
            “Employee” and “employer” have corresponding meanings.

Income Tax (Earnings and Pensions) Bill
Part 8 — Former employees: deductions for liabilities
    279

563   Other interpretation
In this Part each of the following expressions, when used in relation to a former
employee, has the meaning given—
                      “former employment” means the employment which the former
employee has ceased to hold;
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                      “former employer” means—
                  (a)                 the person under whom the former employee held the former
employment,
                  (b)                 a person for the time being carrying on the whole or any part of
the business or other undertaking for the purposes of which the
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former employee held the former employment,
                  (c)                 a person who is for the time being subject to any of the liabilities
with respect to that business or other undertaking of the person
mentioned in paragraph (a), and
                  (d)                 a person who is connected with a person falling within
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paragraph (a), (b) or (c);
                      “post-employment earnings” means so much of any amount received
after the former employee has ceased to hold the former employment
as constitutes general earnings for the purposes of the employment
income Parts;
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                      “relevant retirement benefit” means a benefit—
                  (a)                 which is received by the former employee under a retirements
benefits scheme of which he is a member in respect of the
former employment, and
                  (b)                 which, under Chapter 2 of Part 6 (benefits from non-approved
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pension schemes), counts as employment income of the former
employee.
564   Application of this Part to office-holders
     (1)    The provisions of this Part are expressed to apply to former employees but they
apply equally to former office-holders.
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     (2)    In those provisions as they apply to a former office-holder—
           (a)           references to holding a former employment are to holding the office;
           (b)           “former employment” means the office held;
           (c)           “former employer” means the person under whom the person held the
office.
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     (3)    In this Part “office” includes in particular any position which has an existence
independent of the person who holds it and may be filled by successive
holders.

Income Tax (Earnings and Pensions) Bill
Part 9 — Pension income
Chapter 2 — Tax on pension income
    280

Part 9
Pension income
Chapter 1
Introduction
565   Structure of this Part
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The structure of Part 9 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;
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                      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
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under this Part or any other provision).
Chapter 2
Tax on pension income
566   Nature of charge to tax on pension income and relevant definitions
     (1)    The charge to tax on pension income under this Part is a charge to tax on that
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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
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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)—

Provision
Income
Chapter (of

this Part)

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Section 569
United Kingdom pensions
Chapter 3

Section 573
Foreign pensions
Chapter 4

Section 577
United Kingdom social security pensions
Chapter 5

Section 580
Pensions or annuities from approved retirement
Chapter 6

benefits schemes

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Income Tax (Earnings and Pensions) Bill
Part 9 — Pension income
Chapter 2 — Tax on pension income
    281

Provision
Income
Chapter (of

this Part)

Section 583
Unauthorised payments from—
Chapter 6

     (a)    approved retirement benefits schemes, or

     (b)    former approved superannuation funds (see

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section 593)

Section 590
Annuities paid under former approved
Chapter 7

superannuation funds

Section 595
Annuities from approved personal pension schemes
Chapter 8

Section 598
Income withdrawals under approved personal
Chapter 8

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pension arrangements

Section 601
Unauthorised personal pension payments
Chapter 8

Section 605
Annuities under retirement annuity contracts
Chapter 9

Section 609
Annuities for the benefit of dependants
Chapter 10

Section 610
Annuities under sponsored superannuation schemes
Chapter 10

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Section 611
Annuities in recognition of another’s services
Chapter 10

Section 615
Certain overseas government pensions paid in the
Chapter 11

United Kingdom

Section 619
The House of Commons Members’ Fund
Chapter 12

Section 623
Return of surplus employee additional voluntary
Chapter 13

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contributions

Section 629
Pre-1973 pensions paid under OPA 1973
Chapter 14

Section 633
Voluntary annual payments
Chapter 15

567   Amount charged to tax
     (1)    The amount of pension income which is charged to tax under this Part for a
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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—
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            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)).
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     (4)    For the purposes of this Act—

Income Tax (Earnings and Pensions) Bill
Part 9 — Pension income
Chapter 3 — United Kingdom pensions: general rules
    282

           (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,
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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—
                    section 617 (10% deduction from an overseas government pension to
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which section 615 applies);
                    Part 12 (payroll giving).
568   Person liable for tax
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
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to 15.
Chapter 3
United Kingdom pensions: general rules
569   United Kingdom pensions
     (1)    This section applies to any pension paid by or on behalf of a person who is in
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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.
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570   “Pension”: interpretation
In this Chapter “pension” includes a pension which is paid voluntarily or is
capable of being discontinued.
571   Taxable pension income
If section 569 applies, the taxable pension income for a tax year is the full
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amount of the pension accruing in that year irrespective of when any amount
is actually paid.
572   Person liable for tax
If section 569 applies, the person liable for any tax charged under this Part is
the person receiving or entitled to the pension.
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Income Tax (Earnings and Pensions) Bill
Part 9 — Pension income
Chapter 4 — Foreign pensions: general rules
    283

Chapter 4
Foreign pensions: general rules
573   Foreign pensions
     (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
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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.
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574   “Pension”: interpretation
     (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,
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           (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—
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           (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
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existence independent of the person who holds it and may be filled by
successive holders.
575   Taxable pension income
     (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
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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);
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           (b)           section 584 (relief for unremittable overseas income);
           (c)           section 585 (relief on delayed remittances).
576   Person liable for tax
If section 573 applies, the person liable for any tax charged under this Part is
the person receiving or entitled to the pension.
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© Parliamentary copyright 2003	Revised 12 February 2003