© Crown copyright 2018
This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: email@example.com.
Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.
This publication is available at https://www.gov.uk/government/publications/reform-of-employer-contributions-into-life-assurance-and-overseas-pension-schemes/reform-of-employer-contributions-into-life-assurance-and-overseas-pension-schemes
Who is likely to be affected
Employers who provide retirement or death benefits for their employees, or who contribute to their employees’ overseas pension schemes.
Employees, and their beneficiaries, who receive retirement or death benefits from their employers or employer contributions into certain types of overseas pension schemes.
General description of the measure
This measure concerns premiums paid by employers into life assurance products and contributions to qualifying recognised overseas pension schemes (QROPS).
These contributions are currently only tax-exempted if the beneficiary is the employee, or a member of the employee’s family or household. This measure will allow the beneficiary to be any individual or registered charity without the premiums being treated as a taxable benefit in kind.
When an employer provides for death benefits through a life assurance policy or provides retirement benefits through a QROPS, the employee will usually name a beneficiary to receive any payment due upon their death, and may be able to name a beneficiary to receive their retirement benefit.
Premiums paid into these schemes by the employer are currently only tax-exempt if the beneficiary of the employee’s death or retirement benefit is the employee, a member of the employee’s family, or a member their household.
The current tax definitions of family and household only covers the employee’s:
- spouse or civil partner
- children or other dependents
- domestic staff
If the beneficiary is not a member of the employee’s family or household, the premiums paid by the employer are treated as a taxable benefit in kind.
This exemption will be updated to ensure the tax system remains relevant and fair. Extending the exemption to include any individual or registered charity as beneficiary, will provide equal tax treatment regardless of the beneficiary’s relationship to the employee.
Extending the exemption to allow employees to nominate a registered charity is consistent with the government’s policy of providing tax relief on charitable donations.
Background to the measure
The government announced at Autumn Budget 2017 that this relief would be amended and that legislation would be introduced in Finance Bill 2018 to 2019.
This measure has not undergone consultation. Draft legislation was published for consultation on 6 July 2018.
The legislative changes introduced will have effect from 6 April 2019.
The current law is included in chapter 9 of part 4 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003).
Legislation will be introduced in Finance Bill 2018 to 2019 to amend section 307(2) of chapter 9 of part 4 of ITEPA 2003.
The amendments will ensure that the provision of death or retirement benefits in respect of an employee will not be liable to income tax as a benefit in kind where those benefits will be paid to an individual or registered charity.
This includes life assurance premiums or payments into a QROPS.
Summary of impacts
Exchequer impact (£m)
|2018 to 2019||2019 to 2020||2020 to 2021||2021 to 2022||2022 to 2023||2023 to 2024|
This measure is expected to have a negligible impact on the Exchequer.
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure will benefit individuals and charities. The definitions of family and household in ITEPA limit those who the employee can nominate to receive the benefits without incurring a benefit in kind tax charge.
This measure removes the references to families and households and provides equal tax treatment regardless of the beneficiary’s relationship to the employee.
The extension of this exemption to individuals is not expected to have significant impacts for spouses, civil partners, dependents, or any others currently covered by the exemption.
The measure is not expected to impact on family formation, stability or breakdown
It is not anticipated that this will have impacts for those with protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on a small number of businesses.
One-off costs include familiarisation with the changes to the rules. It is not expected there will be any ongoing costs.
There will be no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
There is a negligible impact on HMRC, as only minor changes to guidance will be required.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups.
If you have any questions about this change, please contact the Employment Income Team at firstname.lastname@example.org