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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
Updated
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Payments exempted from or not charged to tax as pension income

Exemptions: any taxpayer

No liability to income tax arises in the following cases:

  • awards for bravery - pensions or annuities paid to the holder of an award for bravery in respect of the award. See Section 638 ITEPA 2003 and EIM74307.
  • pensions in respect of death due to military or war service - certain pensions paid to war widows and other dependants of deceased servicemen. See Section 639 ITEPA 2003 and EIM74305.
  • wounds and disability pensions - certain wounds and disability pensions paid in respect of service with the armed forces of the Crown. See Section 641 ITEPA 2003 and EIM74302.
  • compensation for National-Socialist persecution - for further guidance, see IM1581 to IM1586 and Section 642 ITEPA 2003.

Malawi, Trinidad and Tobago and Zambia government pensions

Under Section 1 Overseas Pensions Act 1973, the responsibility for payment for certain pensions was transferred to the United Kingdom government from the governments of the above countries that were former United Kingdom colonies. Section 643 ITEPA 2003 exempts these pensions provided that the original pensioner retired before 6 April 1973. Pensions paid to the widow, widower or surviving civil partner of the original pensioner are similarly exempt. The exemption applies provided that the double taxation agreements with these countries continue to provide for the exemption of governmental pensions. The exemption does not apply to any statutory increases resulting from the application of the Pensions (Increase) Act 1971.

Pensions payable where employment ceased due to disablement

Section 644 ITEPA 2003 exempts certain disability pensions in whole or in part. It enshrines in statute an Extra-Statutory Concession (ESC A62) that applied before 6 April 2003. See EIM74012 for guidance on Section 644. Guidance on disability pensions paid to retired police officers and fire service personnel can befound at EIM74310.

Social security pensions: increases in respect of children

Sometimes the recipient of a social security pension (see EIM74600) such as the state retirement pension can receive an increased amount if he or she has a dependent. Section 645 ITEPA 2003 exempts any part of such a pension that is attributable to an increase in respect of a child. These increases are commonly known as child dependency additions.

Former miners, etc.: coal and allowances in lieu of coal

Section 646 ITEPA 2003 exempts the provision of coal or smokeless fuel to a former colliery worker or to the widow, widower or surviving civil partner of such a worker. The exemption also applies to an allowance paid in lieu of such provision. The amount of coal or fuel provided or the allowance paid in respect of coal or fuel must not substantially exceed the amount reasonably required for personal use. A former colliery worker is defined as any person who has ceased to be employed as a coal miner or who has ceased to be employed at a colliery. Those who were employed in clerical, administrative or technical work are excluded from the definition and therefore cannot obtain the exemption.

Before 6 April 2003, this exemption was given by extending the application of an Extra-Statutory Concession (ESC A6) to retired miners (see SE66695).

Exemptions for non residents

Part 9 Chapter 18 ITEPA 2003 exempts certain pensions that are payable to persons who are not resident in the United Kingdom. See EIM74402 for details.

Other payments not charged to income tax

The Church of England Pensions Board make payments out of two charitable funds:

  • The Clergy Pensions Augmentation Fund and
  • The Clergy (Widows and Dependants) Augmentation Fund.

With the exception of certain payments to widows and dependants, to which the Board applies PAYE, payments made out of these funds are non-taxable gifts.