EIM15035 - Non-approved and employer-financed retirement benefits schemes: persons chargeable and residence rules

Sections 386(6) and 394 ITEPA 2003

It is common for a non-approved or employer-financed retirement benefits scheme to provide benefits for people other than an employee. The payment of a lump sum or pension to the surviving spouse of an employee who dies in service would be a typical example.

For employer contributions to non-approved schemes, provision of benefits for any of the following is treated as made to the employee (Section 386(6) ITEPA 2003). So an employer's contributions to a scheme providing benefits for these people are also chargeable on the employee (see EIM15040):

• the employee's spouse or widow/widower and (from 5 December 2005) civil partner/surviving civil partner
• the employee's children
• dependants of the employee
• the personal representatives of the employee.

Where any benefit is paid out of a non-approved scheme or where a “relevant benefit” (see (2) of EIM15021) is paid out of an employer-financed scheme:

• where the recipient is an individual, the benefit counts as employment income of that individual under Section 394(1) ITEPA 2003 (see EIM00512)
• where the recipient is not an individual (for example, a company or club) (a) the “administrator” of the scheme (if the scheme is non-approved) or (b) the “responsible person” (if the scheme is employer-financed) is assessed to income tax (Section 687 IT(TOI)A 2005). See EIM15036 for definitions of “administrator” and “responsible person” and EIM15020 for “non-approved” and “employer-financed”.

The residence rules found in Chapters 4 and 5 Part 2 ITEPA 2003 (see EIM40001) do not apply to a charge under Section 394 ITEPA 2003. That is because such a charge is classified as “specific employment income” by Section 7(4) ITEPA 2003 and those Chapters are not applicable to such income (Section 6(3) ITEPA 2003). A charge arises where there is either a person or a source of income in the UK.

For the year of assessment, see EIM15038.