Income Tax (Trading and Other Income) Act 2005 section 426

Annuity payments received after deduction of tax

Section 426 establishes that when income tax has been deducted at source from an annuity payment, the recipient of that annuity is treated as having paid that income tax themselves.

• When a payer deducts income tax from an annuity payment before paying it to the recipient, that deducted tax is treated as income tax paid by the recipient.
• The recipient is taxable on the full gross amount of the annuity — that is, the net amount actually received plus the tax deducted at source.
• This treatment applies regardless of whether the annuity is paid out of the payer's taxed income or not, covering all circumstances in which tax is required or permitted to be deducted.
• Where the payer fails to deduct tax, the recipient can still be assessed to tax on the full payment amount; there is no double taxation because the legislation implicitly prevents the same income being taxed twice.