Non-approved schemes: overseas schemes: lump sums from asset disposals
Section 397(4) to (10) ITEPA 2003
As explained in EIM15416 there were special rules dealing with lump sums derived from overseas non-approved retirement benefits schemes where the lump sum came from either:
- the disposal of a part of an asset
- the surrender of any part of or share in any rights in any asset and further lump sums may arise from further such disposals or surrenders
An Inspector should consider such a case.
These rules will most frequently apply to schemes where the contributions are invested in an insurance policy. The legislation applies to lump sums received from insurance-based schemes where the insurance is not with a UK office. Gains from offshore insurance policies are already chargeable to tax but section 397(4) ITEPA 2003 takes precedence where a policy is encashed in order to pay a lump sum benefit.
EIM15416 explained the calculation to be made in arriving at the amount of the charge in these offshore cases. But where the lump sum arises under the circumstances outlined in this guidance the deduction mentioned in EIM15416 is calculated in a special way:
- first, the sum is calculated following the rules of EIM15416
that sum is then:
- multiplied by the amount of the lump sum received and
- divided by the market value of the asset in relation to which the disposal or surrender occurred. In making that valuation it is assumed that the valuation is made immediately before the disposal or surrender concerned
These rules apply where the person having a right to receive (or any expectation of receiving) a further lump sum from the scheme is:
- the employee
- the employee’s relatives (spouse, widow/widower, child or dependant) or personal representatives
- any person connected with the employee within section 839 ICTA 1988 (for the meaning of connected see CG14580 onwards, which deal with the virtually identical section 286 TCGA 1992)
The market value of any asset should be arrived at following section 272 to 273 TCGA 1992.
Note: Section 397 has no application for receipts after 5 April 2006. After that date, receipts from employer-financed retirement benefits schemes are charged in full (see EIM15010) subject to transitional provisions (see EIM15125).