Annex 1: Minor changes in the law made by the Act: Change 64: Post cessation receipts treated as relevant UK earnings for pension purposes: section 256
This change gives statutory effect to the practice of treating certain sums received after a trade, profession or vocation has ceased (post-cessation receipts) as relevant earnings for the purposes of making pension contributions.
Sections 103 and 104 of ICTA charge post-cessation receipts under Schedule D Case VI. This charge is rewritten in Chapter 18 of Part 2 of this Act.
Section 107 of ICTA provides that amounts charged to tax under sections 103 and 104 of ICTA shall be treated as earned income if the profits of the trade, profession or vocation would also have been treated as earned income before the cessation. This treatment is rewritten as section 256 of this Act.
If section 107 of ICTA applies to treat an amount as earned income it is Inland Revenue practice to treat that amount as relevant earnings for the purposes of retirement annuity relief or making contributions under personal pension arrangements (sections 623(2) and 644(2) of ICTA).
FA 2004 introduced a new regime for taxing pensions to take effect in April 2006. The equivalent of relevant earnings in that regime is relevant UK earnings as defined in section 189(2)(b) of FA 2004. Without the change in the law introduced by section 256 the practice described in the previous paragraph would be extended to the new regime. Section 256 anticipates this by providing that post-cessation receipts treated as earned income are also treated as relevant UK earnings for pension purposes.
Retirement annuity relief and personal pension arrangements are dealt with as a transitional measure in paragraph 60 of Schedule 2 to this Act. This is in line with the approach taken to the rewrite of other provisions affected by the new pension regime. The new rules are dealt with in the substantive section and the old rules which apply until 5 April 2006 are dealt with in the transitionals Schedule.
This change is in taxpayers' favour in principle. But it is expected to have no practical effect as it is in line with current practice.