beta This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Employment Income Manual

Employer-financed retirement benefits schemes: excluded benefits: armed forces benefits

Section 393B(3)(d) Income Tax (Earnings and Pensions) Act 2003
Employer-Financed Retirement Benefits (Excluded Benefits for Tax Purposes) Regulations 2007 S.I. 2007 No.3537, as amended by The Employer-Financed Retirement Benefits Schemes (Excluded Benefits for Tax Purposes) (Amendment) Regulations 2011 S.I. 2011 No.2281

The 2007 regulations (amended by S.I. 2009 No.2886) provide for a number of general exceptions to what normally counts as a relevant benefit (see EIM15021). The 2011 regulations make particular provision for certain benefits paid specifically to or in respect of armed forces personnel, to be excluded from counting as relevant benefits.

The specific exceptions for armed forces personnel are as follows:

  • the payment of tuition fees in respect of eligible members of the armed forces, for further and higher education delivered during or after the tax year 2009 to 2010. This exception extends after the death or medical discharge of a member of the armed forces, to education provided to a member of their family. (See EIM15032 for full conditions.)
  • the provision of a lump sum in connection with resettlement commutation, resettlement grants and gratuity earnings - as described in the Armed Forces (Redundancy, Resettlement and Gratuity Earnings Schemes) (No. 2) Order 2010, SI2010/832. This applies to payments made during or after the tax year 2010 to 2011.

The exception for gratuity earnings also extends to payments made after the death of a member of the armed forces, where payment is to a member of their family or their personal representatives.

  • the provision of independent inquest advice after the death in service of a member of the armed forces, where the advice is provided to a member of their family or to their brother or sister.

This exclusion operates wherever there are elements of employer funding (such as Ministry of Defence funding) even if other elements of the advice or service are funded charitably. If an advice service operates entirely without any employer funding, then the advice can’t be a relevant benefit, so no exclusion is required.

(See also - exception for the Armed Forces Compensation Scheme SI 2006 No.132 EIM15021)

Meaning of ‘armed forces’

In all of the above, ‘armed forces’ means the regular forces and the reserve forces as defined in s.374 of the Armed Forces Act 2006 and former members of both.

Reasons for these exceptions

The exceptions for the above payments or benefits, were provided by Parliament to meet commitments in the government’s 2008 Service Command Paper and later Armed Forces Covenant. The 2011 regulations are intended to exempt from tax any taxable element of these payments.