A special commissioner decided that a husband was not entitled to transfer one half of his pension from a former employer to his wife so that she could take advantage of her personal allowance which was not fully utilised. Since the husband was the person both receiving and entitled to the pension, he was liable to income tax on the whole of it.

Facts

The first taxpayer had been employed as an engineer until he retired in 1992, aged 60. Under the terms and conditions of his employment, he was a member of his employer's pension scheme, an exempt approved scheme for the purposes of the Income and Corporation Taxes Act 1988. The taxpayer's membership of the scheme entitled him to a personal pension for life on retirement, and his wife to a lesser widow's pension for life should he predecease her. From 1992 until 2005, the taxpayer's pension was paid to him and the payer deducted and accounted for tax on it on the basis that it was his personal income, applying coding produced by the Revenue. Under s. 582 of the Income Tax (Earnings and Pensions) Act 2003, as ‘the person receiving or entitled to the pension’, he was liable to tax on it.

In his tax return for the year ended 5 April 2005, the taxpayer disclosed the pension income he received under the scheme and that he was married. The basicinformation he returned as to his pension income mirrored that included in all his returns from 1992 onwards. But in respect of that year, he claimed that one half of the pension paid to him was not his but his wife's, he having transferred it to her. His wife (‘the second taxpayer’) in turn claimed in her return that the pension income her husband had transferred or assigned to her was her income and, as her state pension (her only other income) had not absorbed the whole of her personal allowance, she was entitled to a tax repayment equal to the tax she had allegedly overpaid. The taxpayers both made similar claims in their tax returns for the tax year ended in 2006. Rule 40 of the Scheme provided that ‘Save as permitted by the Pensions Act [1995], benefits payable under the Rules and the entitlement or right thereto cannot be assigned, committed, surrendered or charged and no lien or setoff may be exercised in respect of them’. Following the enactment of the Welfare Reform and Pensions Act 1999, the rules of the Scheme were amended to permit the assignment of part or all of a retirement pension or rights to a pension under the scheme to an ex-spouse to the extent necessary to comply with a pension sharing order, agreement or similar provision. As the taxpayers remained married, the amendments to the scheme made by the 1999 Act did not apply to them.

The Revenue did not accept that any transfer of income had taken place, amended the self-assessment returns of the taxpayers and issued closure notices. The taxpayers appealed.

Issue

Whether the first taxpayer was entitled to transfer one half of his pension from his former employer to his wife for income tax purposes, thereby enabling her to take advantage of her personal allowance which was not fully utilised.

Decision

The special commissioner (David Demack) (dismissing the appeal) said that the appeal was concerned with the taxation of income consisting of pension payments, and clearly fell within the jurisdiction of the special commissioners. The taxpayers having served the necessary notices of appeal, and not having withdrawn them, the special commissioners had jurisdiction to deal with the appeals. Since the taxpayers had indicated that from choice they would not be attending the hearing of their appeals, the commissioner heard the appeals in their absence.

The taxpayers claimed that since pensions due to divorced people might be ordered (albeit by court order) to be paid partly to one party and partly to the other, equality and fairness demanded that they be allowed to apportion the husband's pension between them as indicated in their 2005 and 2006 returns. However, tribunals were a statutory creation and had to apply the law as Parliament enacted it; fairness and equality were not matters they could take into consideration in arriving at their decisions. Applying ITEPA 2003, s. 582, the first taxpayer was the person both receiving and entitled to the pension he received, and he was liable to income tax on the whole of it. It followed that the amendments made by the Revenue to his self-assessment returns were correct, and his appeal had to be dismissed. It also followed that the second taxpayer wife was not entitled to the repayments which she claimed, that the amendments made to her self-assessment returns were correct, and her appeal was also dismissed.

(2007) Sp C 638.
Decision released 13 September 2007.