Non-taxable termination payments

Produced by Tolley in association with

Employment Tax

Guidance

Some payments made on the termination of an employment or office can be paid tax free. Some of these exemptions are often overlooked in practice. See Simon’s Taxes E4.802DA–E4.802F for an overview of exemptions and exceptions.

A payment may be exempt where:

•
it falls within the £30,000 exemption
•
there is a legislative exemption, or
•
it is not treated as employment income in the first place

As discussed in the How could a termination payment be taxed? guidance note, ITEPA 2003, s 401 applies only where a payment is not taxed under another part of the legislation. Using the order of priority set out in that note will assist with assessing whether a payment falls into s 401.

Here, we look at exemptions for those termination payments that are within ITEPA 2003, s 401.

£30,000 exemption

There is a specific exemption available against termination payments which fall within ITEPA 2003, s 401. The exemption means that the first £30,000 of any termination payment is not treated as employment

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Sue El Hachmi

Senior Associate at Osborne Clarke

Sue advises on the design and implementation of employee incentive arrangements for private and public companies, including all types of tax-advantaged plans and bespoke arrangements for senior executives and management. Sue also advises on the incentive-related aspects of corporate transactions and has experience of private equity transactions and public company takeovers, flotations and demergers. Sue is a member of the Share Plan Lawyers Group and a member of the UK BioIndustry Association Finance and Tax Advisory Committee.

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