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HMRC internal manual

Employment Income Manual

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.

Partnership annuities

Annuities paid by current partners to retired partners under the terms of a partnership deed are not subject to deduction of tax under PAYE.