SE65870 - Tax treatment of Local Authority officials and employees: terminal gratuities for non-pensionable service

This guidance deals with the tax treatment of terminal gratuities made since 6 July 1995 for non- pensionable service under the Local Government Superannuation (Gratuities) Regulations 1995. Advice on payments made before that date may be obtained from Employment Income Technical.

The Regulations allow local authorities, at their discretion, to pay lump sum gratuities on termination of employment to employees who have not been members of the Local Government Superannuation Scheme for the whole or part of their service.

Under these Regulations, lump sum gratuities may be made under separate schemes for redundancy, death in service and retirement. Deal with them as follows:

• redundancy lump sum: chargeable under Section 148 ICTA 1988 (see SE13750)
• retirement and death lump sums: these normally fall within Inland Revenue limits for approval. It is expected that local authorities will seek such approval from IR SPSS (Nottingham) for these schemes, and special arrangements are in place in that office to assist this process. Any lump sum from such a scheme after the date of approval is exempt from tax. If such approval is not obtained, schemes dealing with retirement or death will be non-approved retirement benefits schemes and the lump sums within Section 596A ICTA 1988 (see SE15100).