UK - The Inland Revenue has lost its long-running battle over the tax treatment of lump sum payments for directors pursuing non-executive roles after retirement.
The House of Lords ruled that the Revenue had been wrong to pursue its case against Mr Venables – an executive director who claimed early retirement but continued at his firm in a non-executive role.
The Revenue said Venables was not entitled to a tax free lump sum because he still worked at his former employer. The House of Lords said this was a “question of fact”.
Lord Millett explained that the House of Lords’ decision turned on the meaning of the word “retire” in the trust deed.
“The recitals to the trust deed explain its purpose as the provision of benefits to ‘directors and employees’ of the company.”
He said that to “retire” was to retire from the service of the company whether as an employee or director, and under the trust deed unremunerated service – such as a non-executive role – was not a pensionable occupation.
Barnett Waddingham partner Adrian Waddingham said the ruling “closes a shameful chapter in the Revenue’s history”.
He continued: “There was never any tax avoidance.
“It was always wrong for the Revenue to peruse this issue at the tax payers expense.”
But Linklaters pensions litigation partner Mark Blyth said: “There is a need for caution because it is clear that it is a question of facts in each case and people need to look carefully at the position they are in against the framework of the actual rules.”
Hammonds partner Andrew Powell added: “It has righted an obvious wrong. It also potentially leads to some liberation.
“But it doesn’t clarify the position where someone continues to do the same job but less of it.”
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