§ Lord Campbell-Savoursasked Her Majesty's Government:
What will be the treatment of tax settlements between employers and employees following the Preston judgment. [HL3506]
§ Lord McIntosh of HaringeyThe Preston judgment means that many employers must give all their part-time employees and certain of their ex-employees, retrospective access to membership of their occupational pension schemes from April 1976 or in some cases later. The employers concerned have a responsibility to settle with their employees and ex-employees how this should be achieved in each case. There are outstanding cases before employment tribunals which are designed to determine how employers and employees should meet their liabilities.
Where employees are entitled to membership rights in an occupational scheme in respect of past periods of employment, the normal rules about tax relief on contributions continue to apply. That is: all employers' contributions to occupational pension schemes, including any for past service, qualify for corporation tax relief; employees' contributions up to 15 per cent of their salary from the employer concerned in the year the contributions are paid qualify for income tax relief, irrespective of whether any part of the contribution is in respect of previous years' service; employees may make contributions to their schemes above 15 per cent of salary in any tax year but any such contributions do not benefit from tax relief.
In some cases, employers and employees may prefer to agree on lump sum settlements rather than additional membership rights in occupational schemes. In these cases, the lump sums are not taxable as income under Schedule E but will be liable to capital gains tax subject to the normal annual exemption.