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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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Pensions: particular occupations: armed forces : exempt pensions: practical issues

Length of service

Length of service may sometimes be taken into account in calculating the amount of a pension or retired pay of a kind listed in section 641(1) ITEPA 2003. In these circumstances, the whole of the disablement pension etc should be excluded from liability to income tax provided that the immediate occasion of retirement was disablement attributable to service.

Combining service and disablement pensions

Where a member of the armed forces is invalided out in circumstances which qualify him for both a disablement pension (awarded for a cause attributable to service) and a service pension, the combined pension should be regarded as within section 641(1) and exempt from income tax. Where it is found that tax has been wrongly charged on an exempt pension, the taxpayer should be informed and repayment made for all years, including those outside normal time limits.

Where a member of the armed forces retires, not because of disablement but because, for example, his period of service has ended, and after retirement establishes a claim in respect of disablement attributable to service, the pension awarded in respect of disablement will fall within section 641(1). However, the service pension will remain taxable.

Disablement following re-enlistment

A former member of the armed forces in receipt of a service pension may rejoin and suffer disablement attributable to the later period of service. In these circumstances, only the additional award in respect of disablement will fall within section 641(1). The original pension (recalculated in some cases by reference to the further period of service) will remain liable to income tax.

Disablement not attributable to service

A disability pension awarded for a cause not attributable to service is taxable. A former member of the armed forces who has been invalided out may have failed to return a service pension under the misapprehension that it was exempt under section 641. Where the relevant HMRC officer is satisfied that there have been no other irregularities in the pensioner’s returns, the case should be referred to Public Departments (London) before seeking to recover tax for any year prior to that in which the omission is discovered.

Cases of doubt or difficulty

As the notification of an increase in the rate of a service pension may not always indicate clearly whether the pension is taxable or exempt, any cases of doubt or difficulty should be referred to South Wales Area.

Former service personnel of foreign governments

Wounds or disablement pensions paid by foreign governments to former service personnel resident in the United Kingdom will normally be exempt by reason of section 644 ITEPA (see EIM74012).