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Section 408 ITEPA 2003

Before 6 April 2006

As part of the arrangements on termination of an employment, employer and employee may reach an agreement that the employer:

• makes a contribution into a tax-exempt pension scheme (see EIM13660), or
• makes a contribution into an approved personal pension scheme (see EIM01570)

for the employee’s benefit. Normally this means an adjustment to the termination payment.

»Ê¹ÚÌåÓýappse payments are not charged under Section 401 ITEPA 2003 provided that CAR Pension Schemes Services confirms that they do not breach any approval rules.

From 6 April 2006

»Ê¹ÚÌåÓýapp same treatment applies to contributions paid to a registered pension scheme or an employer-financed retirement benefit scheme (see EIM13660).

Note that payments that qualify under these rules should not be treated as using up any of the £30,000 threshold available for that termination under EIM13505 and subsequent guidance. So if an employer makes a contribution of £30,000 satisfying the above conditions and there is also a payment within Section 401 ITEPA 2003 of a further £30,000, there will be no charge at all under Section 401 ITEPA 2003.

Section 408 ITEPA 2003 removes a charge under Section 401 ITEPA 2003; it cannot remove acharge under Section 62 ITEPA 2003 (see EIM00515). However, arrangements are usually made so that any entitlement to a termination payment that would fall within Section 62 ITEPA 2003 is lawfully waived before the special contribution is made (see EIM42750).

Before 6 April 2003, the exception given by Section 408 ITEPA 2003 was available in the same terms under Statement of Practice 2/1981.