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Ex-Gratia Payments

Volume 98: debated on Wednesday 4 June 1986

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asked the Chancellor of the Exchequer if he has any plans to seek to amend the legislation for taxing ex-gratia lump sums paid to individuals on the termination of their employment.

The Inland Revenue has been advised that the effect of the legislation governing the tax treatment of such payments where they exceed £50,000 is to give more relief than was originally intended when these rules were amended in 1982, or than the Revenue has hitherto believed the legislation permitted. The Government therefore propose to amend the rules for the future so that they accord with our original intentions. The necessary provision will be introduced at Committee stage of the Finance Bill and a new clause to that effect has been tabled. We propose that the corrected rules should apply to lump sums paid in respect of a termination of employment, or such other event which gives rise to a charge to tax under section 187 of the Income and Corporation Taxes Act 1970, occurring on or after today's date—4 June 1986.This also means that tax relief given on any lump sums exceeding £50,000 paid since 6 April 1982 will have been calculated incorrectly. As a result, anyone who has paid tax on such a lump sum may now be entitled to a repayment of tax. The Inland Revenue press release issued today, of which copies are available in the Library, explains fully what steps a taxpayer should now take to claim a repayment.