SE13260 - Termination payments and benefits: non-cash benefits: transitional arrangements for terminations between 6 April 1996 and 5 April 1998

The new rules for Section 148 ICTA 1988 apply to payments and benefits that are received on or after 6 April 1998 (see SE13040). Payments and benefits received before that date are normally subject to the old rules described in SE13100 and SE13255 but there is an exception.

For terminations which took place between 6 April 1996 and 5 April 1998, “transitional arrangements” were in place. These allow a taxpayer to elect for a non- statutory approach under which the non-cash benefits received before 6 April 1998 are valued following the new rules (see SE13270) but the benefits are then assessed for the year of termination (along with any cash payments received before 6 April 1998).

For example, a termination settlement reached on 1 December 1996 provides for the continued use of a company car for 3 years after termination. The taxpayer can choose between:

• the statutory rules under which the promise to provide the benefit is valued and assessed and the actual use of the car is ignored (see SE13255) or
• the “transitional arrangements”. The promise to provide the benefit is ignored and the value of the benefit is its “cash equivalent” (see SE13270)

In both cases the year of assessment is 1996/97 (the year of termination).

However, any payments or benefits received on or after 6 April 1998 under the “transitional arrangements” should be dealt with under the new rules (see SE13270).

Full details of these arrangements were published in a Taxes Series Memo now withdrawn as obsolete. If you need more information, ask Employment Income Technical for a copy of TS53/1997.

There are examples at example SE13940.