Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Savings and Investment Manual

HM Revenue & Customs
, see all updates

Annual payments: annuities

An annuity is an investment of a capital sum that entitles the investor to regular income payments for a fixed period, or for life, usually in return for a lump sum.

It is therefore a particular type of annual payment. Before 2005-06, annuities were included with annual payments in the tax charge under Case III of Schedule D in ICTA88/S18 (3). However, the rewritten legislation in Chapter 7 of Part 5 of ITTOIA05 taxes only ‘annual payments not otherwise charged’. Most annuities are now taxed either as savings and investment Income under Part 4 of ITTOIA05, or as pension income under Part 9 of ITEPA03, rather than as annual payments.

Purchased life annuities

Purchased life annuities are insurance products. They are taxable as savings and investment Income under Chapter 7 of Part 4 of ITTOIA05. See the Insurance Policyholder Taxation Manual (IPTM4000 SAIM20000) for more details.

Pension annuities

ITEPA03/PT9/CH5A provides that annuities paid under a registered pension scheme, or purchased out of funds held in the scheme, are taxed as pension income. EIM74007 gives details of annuities that are taxed as pension income.