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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
, see all updates

Pension income: an overview

Part 9 ITEPA 2003

Part 9 ITEPA charges pension income to tax. Section 566(2) ITEPA 2003 defines pension income as the pensions, annuities and other types of income listed in Section 566(4) ITEPA 2003. These are:

Statutory reference Type of income Guidance
Chapter 3 - Section 569 United Kingdom pensions EIM74003
Chapter 4 - Section 573 Foreign pensions EIM74500
Chapter 5 - Section 577 United Kingdom social security pensions EIM74600
Chapter 5A – Section 579A (from 6 April 2006) Pensions under registered pension schemes EIM74014
Chapter 6 - Section 580 (2005-06 and earlier) Pensions or annuities etc from approved retirement benefits schemes EIM74009
Chapter 7- Section 590 (2005-06 and earlier) Annuities paid under former approved superannuation funds EIM74007 and EIM74009
Chapter 8 - Section 595 (2005-06 and earlier) Annuities, etc. from approved personal pension schemes EIM74007 and EIM74009
Chapter 9 - Section 605 (2005-06 and earlier) Annuities under retirement annuity contracts EIM74007
Chapter 10 Other employment related annuities EIM74007
Chapter 11 - Section 615 Certain overseas government pensions paid in the United Kingdom EIM74006
Chapter 12 - Section 619 The House of Commons Members Fund EIM74309
Chapter 13 - Section 623 (2005-06 and earlier) Return of surplus employee additional voluntary contributions EIM74013
Chapter 14 - Section 629 Pre-1973 pensions paid under OPA 1973 EIM74500
Chapter 15 - Section 633 Voluntary annual payments EIM74011
Chapter 15S – Sections 636B and 636C (from 6 April 2006) Certain lump sums under registered pension schemes EIM74014

Changes effective from 6 April 2006

Section 204 and Schedule 31 Finance Act 2004 amended Part 9 ITEPA to take account of fundamental changes to the tax regime for pensions. Most schemes that before 6 April 2006 paid pensions or annuities taxable under Part 9 Chapters 6 to 9 became registered pension schemes on that date. With effect from 6 April 2006, all pensions and annuities paid under registered pension schemes are taxable under the rules in new Chapter 5A. Chapters 6 to 9 and Chapter 13 do not apply to pension income for any tax year after 2005-06. New Chapter 15A exempts certain lump sums paid under a registered pension scheme but also provides that certain lump sums are treated as taxable pension income.

See the Registered Pension Schemes manual for detailed guidance about registered pension schemes including tax relief, allowances and member benefits.

Exempt income

Exempt income means pension income on which no liability to income tax arises as a result of any of the provisions listed in Part 9 Chapters 15A to 18 ITEPA 2003. See EIM74008 for an overview of these provisions.

Person who is liable to tax

For each of the different categories of pension income in Part 9 Chapters 3 to 15A ITEPA 2003, there is a provision that identifies the person who is liable to tax. For pensions or annuities, the person liable to tax will be the person who receives or is entitled to the pension or annuity. Before 6 April 2006, different rules applied to unauthorised payments from approved schemes and to the charge on the return of surplus employee additional voluntary contributions. See EIM74010 for guidance on who is liable to tax where entitlement to a pension is included as part of a financial settlement on divorce.

Amount of pension income charged to tax

For each pension or annuity, the amount charged to tax is the net taxable pension income for the tax year. This figure is found by subtracting any deductions (see EIM74201) allowed from pension income from the taxable pension income. The amount of taxable pension income is determined by reference to the relevant Chapter of ITEPA 2003 that applies to the pension or annuity in question. See EIM74101 for details of how to find the amount of taxable pension income for each category.

PAYE and deduction of tax

Many pensions and annuities are subject to deduction of tax under PAYE or otherwise. See EIM74261 for details.

Procedural matters

As regards procedural matters relating to pensioners see the PAYE Operation area of the PAYE Manual.