Income Tax (Earnings and Pensions) Act 2003 section 395

Reduction where employee has contributed

Section 395 provides for a reduction in the taxable amount of a lump sum received from an employer-financed retirement benefits scheme where the employee has made contributions towards that lump sum.

• When an employee receives a lump sum benefit from an employer-financed retirement benefits scheme and has personally contributed towards it, the taxable amount is reduced by the total of the employee's own contributions
• The tax charge under section 394 applies only to the net amount — that is, the lump sum minus whatever the employee contributed towards its provision
• A particular contribution can only be used to reduce the taxable amount of one lump sum — the same contribution cannot be set against more than one lump sum payment
• The burden of proof rests with the taxpayer: unless the employee can demonstrate that a reduction applies, it is assumed that no reduction is due