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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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Employment income provided through third parties: relevant step taken after A's death

Section 554Z12 ITEPA 2003

Relevant person is A
Relevant person is an individual other than A
Relevant person is not an individual
‘The relevant taxable person’
Charging income tax if the relevant person is not an individual
More than one relevant person

In general, the value of the relevant step counts as A’s income for the tax year in which the relevant step is taken. But special rules apply if A has died.

Section 554A(4) prevents a relevant step within Section 554B from giving rise to Part 7A income if it is taken on or after A’s death.

Section 554A(4) also prevents a relevant step within Section 554Z18 or 554Z19 from giving rise to Part 7A income if the step is taken on or after A’s death. On Sections 554Z18 and 554Z19 (undertakings given by employers etc in relation to retirement benefits etc: earmarking etc and provision of security), see EIM45150 and EIM45155 respectively.

Special rules apply if the relevant step is a step within Section 554C or 554D (see EIM45060 onwards) and:

  • the relevant step is taken on or after A’s death, or
  • if relevant, any of A’s employment income under the Part 7A rules is remitted to the United Kingdom on or after A’s death.

On the Part 7A rules and the remittance basis, see EIM45800 onwards.

But the special rules do not apply if A’s employment with B never started before A’s death. (Recall that A is not necessarily a current or former employee - A could be a prospective employee.)

The rules focus on the ‘relevant person’ in Section 554C(1) or 554D(1) or (2) - see EIM45090. There are three possible cases. They are bulleted below.

  • The relevant person is A.
  • The relevant person is an individual other than A.
  • The relevant person is not an individual.

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Relevant person is A

A’s personal representatives are liable for, as the case may be, the income tax on:

  • A’s employment income under the Part 7A rules, or
  • so much of that income as is remitted.

But A’s personal representatives would never be able to wind up the estate if they could be liable for income tax if a relevant step was taken after A’s death in favour of a relevant person who was not A. Section 554Z12 therefore ensures that this cannot happen.

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Relevant person is an individual other than A

If the relevant step is taken on or after A’s death, the amount which counts as employment income of A instead counts as an amount of employment income of the relevant person for the tax year in which the relevant step is taken.

In a remittance basis case, the amount which is remitted counts as an amount of employment income of the relevant person for the tax year in which the income is remitted. Since this is a Part 7A rule, ‘relevant person’ here has its Part 7A ITEPA 2003 meaning and not its remittance basis meaning - see EIM45090.

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Relevant person is not an individual

The ‘relevant taxable person’ is chargeable to income tax on the amount which, as the case may be, counts as employment income of A or is remitted.

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‘The relevant taxable person’

To decide who is ‘the relevant taxable person’, you ask two questions.

Question 1.Is the person (or any of the persons) who took the relevant step UK resident?

If so, the relevant taxable person is the person (or each of the UK resident persons) who took the relevant step.

If not, go to Question 2.

Question 2. Was B still alive or in existence when the relevant step was taken?

If so, the relevant taxable person is B.

If not, the relevant taxable person is the non-UK resident person (or each of the non-UK resident persons) who took the relevant step.

Note that ‘relevant taxable person’ in Section 554Z12 and ‘relevant person’ in Sections 554C and 554D are different concepts.

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Charging income tax if the relevant person is not an individual

The rate of income tax is the rate applying under regulations made under Section 394(4) ITEPA 2003 at the time of the relevant step or remittance of income. See EIM15055.

The tax is charged for the tax year in which the step was taken or the income was remitted.

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More than one relevant person

If there is more than one relevant person in relation to the relevant step, you need to make an apportionment between the relevant persons.

The amount you apportion is the amount which counts as employment income of A or is remitted.

You apportion it on a just and reasonable basis.

You then apply the rules about the three possible cases discussed above.