Tax credits renewals - important information

6 Jul 2017

On page 1 of the guidance notes, which accompany the Helpsheet, taxable income from retirement annuity contracts was specifically excluded from the definition of ‚ excluded income‚ . The final bullet point at the top of right hand column on the 2002/03 version said that ‚ excluded income‚ includes ‚ taxable income from purchased life annuities except annuities under personal pension schemes, retirement annuity contracts or trust schemes‚ .

We pointed out to the Revenue that this does not agree with ITEPA 2003 Schedule 6 paragraph 226. Paragraph 226 specifically includes income from retirement annuity contracts in the definition of ‚ excluded income‚ in FA 1995 s128.

We think ITEPA is right in that retirement annuity income was previously assessable under Case III of Schedule D and so was included in s128 by virtue of subsection (3)(a).

The Revenue have agreed and amended IR300 so that the final bullet point in the 2003/04 version now reads ‚ "taxable income from purchased life annuities except annuities under personal pension schemes or trust schemes‚ .

If members have clients using this form to calculate their tax liability they should note this change for 2003/04.

Members may find that their clients have overpaid tax in previous years as a result of this error (see Technical Note below). We have been trying to obtain a ruling from the Revenue on this matter but, for the time being, can only report that the Revenue is ‚ considering the position for earlier years‚ . We will publicise any ruling as soon as it is obtained.

Technical Note - The tax charge for non-residents on investment income arising in the UK is restricted to the amount of tax, if any, deducted at source but with a resulting loss of personal allowances against other income. In calculating whether the restriction might apply the tax paid on all income cannot be more than:

the amount of tax that would be chargeable on income, other than ‚ excluded income‚ , before the deduction of personal allowances, plus the amount of tax deducted from the ‚ excluded income‚ .

The amount of ‚ excluded income‚ is therefore vital to getting the right result. Those who have inadvertently included income from retirement annuity contracts in the amount chargeable to tax without deduction of personal allowances may have paid too much tax in 2002/03 and previous years, particularly if they are higher rate tax payers.

Technical Department 020 7235 9381