Income Tax (Earnings and Pensions) Act 2003 section 396

Certain lump sums not taxed by virtue of section 394

Section 396 provides an exemption from tax for certain lump sum benefits paid from employer-financed retirement benefit schemes, where specific conditions about the taxation of the scheme's investment returns are met.

• Lump sum benefits from employer-financed retirement benefit schemes can be exempt from income tax under this section, provided that all profits arising from the scheme's investments have been subject to UK tax.
• The lump sum must have been provided to one of the persons specified in the legislation — broadly, the employee, their dependants, or other qualifying individuals.
• The burden of proof falls on the taxpayer to demonstrate that the scheme's income and gains have indeed been brought into charge to UK tax.
• An additional condition set out in section 395(4) must also be satisfied before this exemption can apply.