This article, "Payment on Death of Employee to Spouse," originally appeared on AccountingWeb.com.
I am looking for guidance on the correct tax treatment of a payment from an employer to the spouse of a deceased employee.
Background:
The death was not by accident during service.
Prior to the death there were no agreed schemes, agreements etc. in place for the payment to occur.
Post death the employer has decided to pay an ex-gratia payment to the spouse and a deed of covenant signed between the parties.
Tax Treatment:
The payment was not contractually triggered on death and so is not taxable as general earnings under ITEPA 2003, s62.
However, I am uncertain if is the payment meets the definition of a Employer Financed Retirement Benefit Schemes (EFRBS) as defined in ITEPA 2003, s393A and EIM15048.
From my research I appreciate that the legislation has widely drafted the definion of a ‘scheme; to include ‘any prior formal or informal deed, agreement, series of agreements or other arrangements’. Meaning that most payments are meet the defintion of a relevant benefit and should be taxed on the spouse as employment income accordingly.
But does it apply to such an ex-gratia payment agreed to post-death? Does having the signed deed make it an ‘arrangement’ now and taxable unlike if they has simply made the payment after deciding too post-death?
If so, how could the exemption of such payments under s406 could ever apply? As outlined further in EIM13600.