Income Tax (Earnings and Pensions) Act 2003 section 554R

Exclusions: acquisitions out of sums or assets

Section 554R prevents a double tax charge under Chapter 2 of Part 7A when an earmarked sum or asset is replaced by a new sum or asset acquired wholly out of the original, provided the replacement is not used to manipulate values.

• Where a sum or asset (S) has already been taxed under Chapter 2 as an earmarked amount, a replacement sum or asset (T) acquired wholly out of S is not taxed again on earmarking, provided the original earmarking conditions still apply
• T must not be acquired directly or indirectly from the employer (A) or anyone linked with A, ensuring the replacement is a genuine reinvestment rather than a disguised new arrangement
• An anti-avoidance rule disapplies this relief if the value of T differs from the value of S and that difference would not be expected if all connected parties were dealing at arm's length — this targets artificial inflation or deflation of asset values
• A supplementary exclusion ensures that any transfer or payment step taken solely for the purpose of converting S into T is also not taxed under Chapter 2, preventing an incidental charge on the mechanics of the reinvestment

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