EIM15428 - Non-approved retirement benefits schemes: example: receipts excluded from charge: prior employer and employee contributions
Sections 395(2) and (4) and 396 ITEPA 2003
Note: for examples involving employer-financed schemes see EIM15429
Example 1
On 1 January 1995 an employer sets up anon-approved retirement
benefits scheme by contributing £10,000 to a trust for the
purpose of providing benefits on retirement or death for employee
A.
Each subsequent 1 January until 2004 the employer contributes
a further £25,000. All the employer contributions are taxed on
the employee (see
EIM15040).
The employee decides to contribute £500 from personal
income monthly from March 1997 and does so until December 1998.
The fund is based in the UK and pays UK tax on its investment
income and gains.
On 31 December 2004 the fund is wound up. The employee
receives the fund as a single lump sum of £300,000. Since this
falls before 6 April 2006 the rules for non-approved schemes are
considered (see
EIM15010).
All of the contributions to the scheme are either (a)
employer's contributions that have been taxed on the employee or
(b) employee's contributions. So there is no charge under Section
394 ITEPA 2003 (see
EIM15122).
Example 2
The facts are as above but the employer's contributions were not
assessed under Section 595(1) ICTA 1988 or Section 386 ITEPA 2003
as they ought to have been.
Only that part of the £300,000 lump sum attributable to
employee's contributions is not chargeable (see
EIM15122). Those contributions totalled
£11,000 (£500 x 22) out of total contributions of
£196,000 (£11,000 + £10,000 + 9 payments of
£25,000).
The part not chargeable is then £16,836 (£300,000 x
£11,000/£196,000)
unless there is evidence for a more reasonable
attribution. For example, assume that:
- the employee's contributions (and income and gains from those contributions) were all invested in A Ltd shares worth £290,000 when the fund closed
- the employer's contributions (and income and gains from those contributions) were all invested in B Ltd shares worth £10,000 when the fund closed
then a different attribution would be more realistic. Only £10,000 of the lump sum could reasonably be attributed to employer's contributions not assessed on the employee.
