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HMRC internal manual

Employment Income Manual

Non-approved schemes: ill-health and retirement

Termination of employment can occur because of ill health. In such circumstances, the employee may be obliged to give up work completely and this can be described as a ‘retirement’. However, if a payment is made purely as consolation for loss of health that results in premature termination of employment, it is not regarded as made in connection with retirement even though retirement may coincide. The payment should be treated as compensating for the employee’s loss of health that resulted in the termination and not as a retirement benefit.

A payment made on retirement because of disablement by accident is not chargeable (see EIM15403). Such a payment will be chargeable only under Section 401 ITEPA 2003 subject to any claim to the disability exception (see EIM13610).