Reform of employer contributions into life assurance and overseas pension schemes
Updated 9 November 2018
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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 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 or contributions to certain overseas pension schemes. These contributions are currently only tax exempted if the beneficiary of the policy or pension 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 nominated by the employee, without the premiums being treated as a taxable benefit in kind.
Policy objective
When an employer provides for death benefits through a life assurance policy or provides retirement benefits through certain overseas pension schemes, 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 of their household. The current tax definitions of family and household only cover spouse, civil partners, parents, children and dependants, domestic staff and the employee’s guests. If the beneficiary is not a member of the employee’s family, or member of their household, the premiums paid by the employer are treated as a taxable benefit in kind.
This exemption will be updated to make sure the tax system remains relevant and fair. Extending the exemption to include any individual 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 legislation would be introduced in Finance Bill 2018-19.
There are no changes to the draft legislation published on 6 July 2018.
Detailed proposal
Operative date
The legislative changes introduced will have effect from 6 April 2019.
Current law
The current law is included in Chapter 9 of Part 4 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003).
Proposed revisions
Legislation will be introduced in Finance Bill 2018-19 to amend section 307(2) of ITEPA 2003, chapter 9 of part 4. The amendments will make sure that the provision of death or retirement benefits for 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 certain overseas pension schemes.
Summary of impacts
Exchequer impact (£m)
| 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 |
|---|---|---|---|---|---|
| - | negligible | negligible | negligible | negligible | negligible |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
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 2003 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.
Equalities impacts
It is not anticipated that this will have impacts for groups sharing 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 on-going 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
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.
Further advice
If you have any questions about this change, please contact the Employment Income Team by email: employmentincome.policy@hmrc.gsi.gov.uk.