I believe the taxpayer was in fact called Graeme but nonetheless he was certainly trying his luck! In the recent UK case of Forsythe v HMRC the question was how a payment made under a compromise agreement by a former employer to a retired employee to end the employee’s access to a private healthcare scheme should be taxed.
Mr Forsythe retired from Nestle but continued to enjoy the benefits of a healthcare scheme at a cost. Nine years later Nestle offered him a one off payment of £29,783 in compensation for him leaving the scheme. Under the terms of the agreement Mr Forsythe’s entitlement to medical cover under the healthcare scheme would end, as would the cover extended to his family. To this end Mrs Forsythe was informed and her agreement was sought to the proposed terms but, as she had never been an employee of Nestle, she did not sign the compromise agreement.
Mr Forsythe treated half the payment as a capital gain in his tax return – a payment for the surrender of his right to medical care. The other half was attributed to Mrs Forsythe. Alternatively, his advisers claimed that if the payment was subject to income tax it should be treated as a payment on termination of employment so that the first £30,000 would be exempt from tax.
HMRC dismissed both claims and argued that the payment should in fact be taxed as income under the special rules for employer financed retirement benefit schemes. These are wide ranging provisions that tax any lump sum, gratuity or other benefit provided after retirement (or death) in connection with past service. The Tribunal agreed with HMRC.
The outcome of the case is perhaps not surprising but it does highlight the scope of the charge to tax on payments made after retirement outside normal pension scheme arrangements.
