Pensions: PAYE and pension income
Part 11 ITEPA 2003
See the PAYE Operation area in the PAYE Manual for details of procedural issues covering pensioners and PAYE.
Part 11 ITEPA 2003 provides for the assessment, collection and recovery of income tax in respect of PAYE income. Section 683 ITEPA 2003 defines PAYE income as including PAYE pension income. PAYE pension income for a tax year is defined as the taxable pension income for the year determined in accordance with any of the following provisions:
|Type of income||Guidance|
|United Kingdom pensions||EIM74003|
|United Kingdom social security pensions||EIM74600|
|Pensions or annuities, etc. from approved retirement benefits schemes including unauthorised payments for 2005-06 and earlier||EIM74009|
|Annuities paid under former approved superannuation funds for 2005-06 and earlier||EIM74009|
|Annuities, income withdrawals and certain lump sums and unauthorised payments from approved personal pension schemes for 2005-06 and earlier||EIM74009|
|Pensions (including annuities and income withdrawals) under registered pension schemes for 2006-07 onwards||EIM74014|
|Certain overseas government pensions paid in the United Kingdom||EIM74006|
|Payments from the House of Commons Members Fund||EIM74309|
|Voluntary annual payments||EIM74011|
Annuity income subject to deduction of tax
Pensions and annuities that are not in the list above are outside of the PAYE system. Annuities that are not subject to deduction of tax under PAYE but are taxed as pension income include other employment related annuities (see EIM74007). Except in the case of foreign annuities, the payer is obliged to deduct tax at the basic rate. See RE1600 onwards for more information including details of the special arrangements that may in certain circumstances be made with the payer of an annuity to make payment in full without deduction of tax.
Retirement annuity contracts
From 6 April 2006, most annuities paid under retirement annuity contracts (formerly subject to approval under section 620 or 621 ICTA 1988) are taxed as pensions paid under registered pension schemes. These annuities did not come within the definition of PAYE pension income until 6 April 2007. This means that the PAYE rules did not apply before 2007-08.
Annuities paid by current partners to retired partners under the terms of a partnership deed are not subject to deduction of tax under PAYE.