Who is liable to pay tax on annuity payments under ITTOIA 2005 section 425?

Under section 425 of the Income Tax (Trading and Other Income) Act 2005, the person liable for tax on annuity payments is the individual who receives the payments or is legally entitled to receive them. This applies even if the payments have not yet been physically received, so long as a legal right to them exists.

What does 'receiving or entitled to' mean in relation to annuity tax liability?

The phrase 'receiving or entitled to' covers two scenarios: the straightforward case where someone actually receives annuity payments, and the case where someone holds a contractual or legal right to receive them but has not yet been paid. This well-established wording has been extensively interpreted by the courts over many years.

Can a person be taxed on annuity payments they have not yet received?

Yes. Under section 425, tax liability arises not only on annuity payments actually received but also on those to which the person is entitled. For example, if a quarterly annuity payment is due but unpaid at the tax year end, the entitled person remains liable for tax on that outstanding amount.

Why was the phrase 'receiving or entitled to' retained in ITTOIA 2005 section 425?

The phrase was deliberately retained from earlier United Kingdom tax legislation because it is well understood in practice and has been the subject of extensive judicial interpretation. Retaining it ensures continuity and certainty in identifying who bears the tax liability on annuity payments charged under this chapter of the Act.

Income Tax (Trading and Other Income) Act 2005 section 425

Person liable

Section 425 identifies who is liable to pay tax on annuity payments charged under this chapter.

Tax liability falls on the person who receives annuity payments or is entitled to receive them.
The test is based on either actual receipt of the payments or a legal right to receive them.
The phrase "receiving or entitled to" is a well-established concept that has been widely interpreted by the courts.
This provision ensures that the correct individual is identified as the taxpayer, whether or not they have yet received the payments in question.

Access full legislation.And much more.

By becoming a member, your team gets full access to Tax World research tools and source-backed tax resources.

Become a member