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HMRC internal manual

Tax Credits Technical Manual

Pensions Income: Pensions, other payments and benefits disregarded in the calculation of pension income

The Tax Credits (Definition and Calculation of Income) Regulations 2002, Reg. 5 (2), Table 2.

The following pensions and other payments are disregarded:

  • A wounds pension or disability pension to the extent disregarded under section 641 of the ITEPA 2003 (War Pension).
  • An annuity or additional pension payable to a holder of the Victoria Cross, George Cross or any other decoration mentioned in section 638 of the ITEPA 2003 (War pension)
  • The amount of a pension or allowance to which section 639 of the ITEPA 2003 applies that is not taxable by virtue of section 639 of the ITEPA 2003 (War pension)
  • A pension or allowance by reason of payment of which a pension or allowance specified in section 639 of the ITEPA 2003 is withheld or abated. The amount to be disregarded is the amount treated as falling within section 639 of ITEPA by virtue of section 640(2) of that Act. (War Pension)
  • A mobility supplement, or a payment in respect of attendance, paid in conjunction with a war pension. (War pension)
  • A pension awarded at the supplementary rate under article 27(3) of the Personal Injuries (Civilians) Scheme 1983. The amount to be disregarded as income is the amount for the time being specified in paragraph 1(c) of Schedule 4 to the Scheme (currently £34.20 per week). (War pension)
  • A pension awarded on retirement through disability caused by injury on duty or by a work- related illness. The amount to be disregarded is the amount by which the pension exceeds what would have been payable if the retirement had been on grounds of ill- health caused other than by an injury or illness. For more information, see EIM74012 in the Employment Income Manual. The Employment Income Manual contains examples showing when a disability pension is likely to be exempt from income tax by virtue of the legislation and thus disregarded for tax credit purposes as well.( Section 644(3) of the ITEPA 2003)
  • A lump sum on which no liability to income tax arises by virtue of section 636A of the ITEPA 2003.
  • Coal or smokeless fuel ( or an allowance in lieu of) provided for former colliery workers and their widows under section 646(1) of the ITEPA 2003
  • Any amount deductible for income tax for donations to charity under section 713 (the payroll deduction scheme) of the ITEPA 2003