Income Tax (Earnings and Pensions) Act 2003 section 554Z20

Valuation of step within section 554Z19

Section 554Z20 sets out how to value a relevant step where an employer (or similar person) provides security for the performance of an undertaking relating to retirement benefits, and provides for annual revaluation where the security continues to be provided beyond one year.

• The value of the relevant step is the lower of two amounts: the contribution payable under the undertaking (determined at the time the step is taken, on a just and reasonable basis, assuming all conditions for payment will be met) and the value of the security itself.
• The value of the security is the total of any cash sums plus the market value of any assets provided as security, reduced on a just and reasonable basis if the terms of the security cap the amount available to perform the undertaking at a lower figure.
• If the security remains in place beyond one year, each anniversary is treated as a new step, triggering a fresh valuation and a potential further income tax charge.
• For anniversary step valuations, the cash element is taken at its highest point during the preceding year, and the market value of any asset can be determined at any time during that year when the asset formed part of the security, giving flexibility to use a single valuation date across multiple undertakings.