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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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Non-approved schemes: meaning of "retirement"

Section 612(1) ICTA 1988

EIM15403 explained that a relevant benefit includes a provision given on retirement.

Deciding whether a payment is given on retirement can be difficult because there is no full statutory definition of the word. Section 612(1) ICTA 1988 states that retirement is to be interpreted according to the way service is defined, but that only means that there cannot be a retirement unless the employment has ended. Consequently, its natural meaning applies.

Payments made in respect of age-related retirement should not cause problems, for example where the typical age of natural retirement in a job is at a fixed age.

But the situation can be less clear where the termination is described as “early retirement” since this is often in fact a dismissal (for example, due to redundancy or inefficiency). A payment in such a case can represent compensation for loss of the employment rather than a payment on retirement and so may be chargeable only under Section 401 ITEPA 2003 (provided that no contractual entitlement exists, see EIM12850). That is so even if the employee also becomes entitled, at the time of termination, to immediate pension benefits from the employer’s approved pension scheme (see EIM15407). This could occur, for example, where an approved scheme allows a pension to be paid to persons made redundant at age 50 or over.

If the circumstances of the termination do not suggest that there is a dismissal (including a redundancy), severance, resignation or death, then it is likely that it is a retirement (but see EIM15405 if ill health causes the termination and the scheme is non-approved). There are some further guidelines at example EIM15434.