SE15428 - Non-approved retirement benefits schemes: example: receipts excluded from charge
Section 596A(8) ICTA 1988
1.
On 1 January 1995 an employer sets up an unapproved
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 1998 the employer contributes
a further £25,000. All the employer contributions are assessed
on the employee (see
SE15040).
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 1998 the fund is wound up. The employee
receives the fund as a single lump sum of £200,000.
All of the contributions to the scheme are either (a)
employer’s contributions that have been assessed on the
employee or (b) employee’s contributions. So there is no
charge under Section 596A ICTA 1988 (see
SE15122)
2.
The facts are as above but the employer’s contributions
were not assessed under Section 595(1) ICTA 1988 as they ought to
have been.
Only that part of the £200,000 lump sum attributable to
employee’s contributions is not chargeable (see
SE15122). Those contributions totalled
£11,000 (£500 x 22) out of total contributions of
£96,000 (£11,000 + £10,000 + £25,000 +
£25,000 + £25,000).
The part not chargeable is then £22,917 (£200,000 x
£11,000/£96,000)
unless there is evidence for a more reasonable
attribution. For example, say:
- the employee’s contributions (and income and gains from those contributions) were all invested in A Ltd shares worth £190,000 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.
