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HMRC internal manual

Employment Income Manual

Employer-financed retirement benefits schemes: example: payment on non-accidental death

Section 393B ITEPA 2003

[Notice: the guidance on this page should be read with the notice at the top of EIM15015]

Note: If a lump sum death benefit is paid on the non-accidental death of an employee during service provided under scheme rules which were in place before 6 April 2006 then the benefit is not a relevant benefit - see item 2 of the list of excluded benefits under regulations at EIM15021.

An employee died of natural causes on 1 September 2006.

The director of the personnel department of the company the employee worked for decides to make an ex-gratia payment to the employee’s spouse of £50,000. This payment is in addition to a lump sum of £12,500 payable to the employee’s estate under the terms of the employer’s registered pension scheme (see EIM15010 sub-heading on registered pension schemes and EFRBS).

The £50,000 payment is made on 20 September 2006. Because this date falls after 5 April 2006, you consider whether the scheme is an employer-financed retirement benefits scheme (see EIM15010).

A gift on death in these circumstances is a ‘relevant benefit’ (see EIM15021) so an employer-financed retirement benefits scheme is created by the payment (see EIM15048).

The payment is chargeable on the spouse of the employee and counts as employment income (see EIM15055) for the year of receipt 2006/07 (see EIM15058).