Annex 1: Minor changes in the law made by the Act: ITEPA 2003: Explanatory Notes: Annex 1: Change 138: Other employment-related annuities: income chargeable: foreign annuities: section 613
This ensures that 10% can be deducted when calculating what amount of certain foreign annuities is to be taxed and also that retrospective payments of these annuities can be spread out over previous tax years when calculating tax liability.
Sections 65(2) and 585(2) of ICTA both concern pensions taxable under Schedule D, Case V. Schedule D, Case V taxes foreign income and so most pensions arising outside the United Kingdom are taxed under it.
Under section 65(2) of ICTA, the amount of the pension which is taxed under Schedule D, Case V is reduced by 10%.
Section 585(2) of ICTA concerns any pension (or increase in a pension) taxed under Schedule D, Case V which is granted retrospectively (i.e. granted for a period before the time of the grant). The pension (or increase) is treated as arising in the period for which it is granted, not at the time when it is actually granted. This may allow the pensioner’s liability to tax on the retrospective payment to be spread out over more than one tax year.
Section 65(2) and section 585(2) both refer only to pensions, not to annuities. However, certain kinds of annuities taxed under Schedule D are in the nature of pensions. In cases where annuities like these arise outside the United Kingdom (and so are also taxed under Case V), the practice of the Inland Revenue is to allow sections 65(2) and 585(2) to be applied.
The following provisions of Part 9 of the Act (pension income) provide for tax to be charged on those Schedule D annuities which are in the nature of pensions–
	section 609: annuities for the benefit of dependants;
	section 610: annuities under sponsored superannuation schemes; and
	section 611: annuities in recognition of another person’s services.
In cases where these annuities arise outside the United Kingdom, the amount which is taxed is determined in accordance with section 613 of the Act. This section applies certain provisions of ICTA, including sections 65 and 585 (see section 613(1)(a) and (c)). Section 613(4) makes clear that when sections 65 and 585 apply for these purposes, the references in sections 65(2) and 585(2) to pensions are to be read as references to these kinds of annuity.
This change is in principle in taxpayers' favour but is expected to have no practical effect as it is in line with current practice.