»Ê¹ÚÌåÓýapp

Section 394 ITEPA 2003 and Section 612(1) ICTA 1988

An employee died of natural causes on 1 April 2005.

»Ê¹ÚÌåÓýapp director of the personnel department of the company the employee worked for decides to make an ex-gratia payment to the employee’s spouse of £50,000. This payment is in addition to a lump sum of £12,500 payable to the employee’s estate under the terms of the employer’s approved retirement benefits scheme (see second paragraph of EIM15400).

»Ê¹ÚÌåÓýapp £50,000 payment is made on 20 April 2005. Because this date fell before 6 April 2006, you have to consider whether the scheme is a non-approved scheme (see EIM15402).

An ex-gratia payment like this is a gratuity - a gift - and so is a ‘relevant benefit� (see the definition of relevant benefit in EIM15403). So a retirement benefits scheme is created by the payment (see the definition of scheme in EIM15406).

»Ê¹ÚÌåÓýapp payment is not from a scheme approved by Audit & Pension Scheme Services (APSS) and so is not exempt from tax (see second paragraph of EIM15400). Neither could it have been given approved status under Statement of Practice 13/91 because:

• there is another lump sum benefit (of £12,500) from an approved scheme payable in respect of the employment, so the first test in EIM15428 is not met
• the sum is over the limit (£8,800 for 2005/20006 for a small payment approval (see EIM15429).

»Ê¹ÚÌåÓýapp payment is therefore chargeable on the spouse of the employee and counts as employment income. For the year of receipt see EIM15411.

See example EIM15436 regarding death by accident.