Income Tax (Earnings and Pensions) Act 2003 section 404A

Amounts charged to be treated as highest part of total income

Section 404A requires that taxable termination payments and benefits are treated as the highest part of a person's total income for income tax purposes, with a limited exception for life insurance gains relief.

• Termination payments or benefits taxable under section 403 are treated as the highest part of the recipient's total income
• This "highest part" treatment applies for all income tax purposes, meaning the termination income sits on top of all other income and is taxed at the highest marginal rates
• An exception exists for top slicing relief on gains from life insurance contracts, where different rules apply
• Where other tax rules also require certain income to be treated as the highest part of total income, section 1012 of ITA 2007 determines the priority between those competing rules