RPSM04101040 - Technical Pages: Taxation: Authorised member payments: Retirement annuity contracts

Transitional issues: retirement annuity contracts

A pension paid from a retirement annuity contract (RAC) continues to be taxable under Chapter 9, Part 9 ITEPA until 6 April 2007. A pension from a RAC will continue to be taxable as pension income on the amount arising in the tax year on the person in receipt of the RAC pension. A pension paid from a RAC is not PAYE pension income until 6 April 2007 and will continue to be payable under deduction of basic rate tax in accordance with s 349 ICTA 1988

If the person receiving the pension is a non-taxpayer they may arrange with the payer for the pension to be paid without the deduction of tax on completion of form R89. If the person receiving the pension pays tax at the starting rate, basic rate tax must still be deducted by the payer. However, the person receiving the pension can make repayment claims during or at the end of the tax year.