Withdrawal of Statement of Practice SP13/91

Ex gratia payments made on termination of an office or employment due to retirement or death

SP13/91 provided that, on termination of an office or employment, due to retirement or death, ex-gratia awards were payable tax-free, in certain circumstances.

Paragraphs 7 and 8 of this statement of practice, broadly speaking, permitted certain small payments to be made tax-free. This applied where HMRC would have exercised its statutory discretion to allow a tax-approved retirement benefits scheme to make payments of a particular kind.

Part 4 of the Finance Act 2004 became effective from 6 April 2006. This radically altered the tax rules relating to what are now registered pension schemes. The practice that was in operation before 6 April 2006, which permitted these tax-free payments, is not compatible with the new registered regime.

It is not normally possible that a lump sum on retirement is the only benefit that a registered pension scheme provides. The lump sum payment, made without a relevant pension, would, therefore, generally be subject to income tax as an unauthorised payment. The practice set out in SP13/91 therefore ceased to be appropriate as from 6 April 2006.

An arrangement established on or after 6 April 2006 to make ex-gratia payments on retirement or death will constitute an Employer-Financed Retirement Benefits Scheme, for tax purposes.

Detailed guidance on the tax treatment of such schemes is set out in the Employment Income Manual (EIM).

Statement of Practice 13/91 was consequently withdrawn with effect for payments made on or after 6 April 2006 – see EIM 15170.

Issued 15 February 2007.