SE15410 - Non-approved retirement benefits schemes: example: payment on death

Section 612(1) ICTA 1988 & Section 596A ICTA 1988

An employee died of natural causes on 1 April 1999.

The Director of the Personnel Department of the company the employee worked for decides to make an ex-gratia payment to the employee’s spouse of £50,000. This payment is in addition to a lump sum of £12,500 payable to the employee’s estate under the terms of the employer’s approved retirement benefits scheme (see SE15010 at the 2nd paragraph).

The £50,000 payment is made on 20 April 1999.

An ex-gratia payment like this is a 'gratuity' – a gift - and so is a 'relevant benefit' (see the definition of 'relevant benefit' in SE15020). So a 'retirement benefits scheme' is created by the payment (see the definition of 'scheme' in SE15028).

The payment is not from a scheme approved by IR SPSS (Nottingham) and so is not exempt from tax (see SE15010 at the 2nd paragraph). Neither can it be given approved status under Statement of Practice 13/91 because:

• there is another lump sum benefit (of £12,500) from an approved scheme payable in respect of the employment, so the first test in SE15170 is not met
• the sum is over the limit (£7,550 for 99/2000) for a 'small payment' approval (see SE15172)

The payment is chargeable on the spouse of the employee under Schedule E (see SE15035) for the year of receipt 99/2000 (see SE15210).

See example SE15415 regarding death by accident