Finance (No. 3) Bill (HC Bill 200)

(b) in the definition of “non-licence consideration”, omit “as determined
at the time the swap arrangements are entered into”.

(5) For subsection (5B) substitute—

“(5B) Subsections (5C) to (5F) apply for the purposes of sections 195A to
5195F.

(5C) Any determination—

(a) of the consideration given for disposal A or disposal B,

(b) of the non-licence consideration, or

(c) of the value of a licence comprised in disposal A or disposal
10B,

is to be made as at the time the swap arrangements are entered into.

But this is subject to subsections (5D) to (5F).

(5D) Subsections (5E) and (5F) apply if, under the swap arrangements,
economic benefits and liabilities under the licences concerned are
15treated as passing at a time (“the effective time”) which falls before
or after the day on which the arrangements are entered into.

(5E) Any determination—

(a) of the consideration given for disposal A or disposal B,

(b) of the non-licence consideration, or

(c) 20of the value of a licence comprised in disposal A or disposal
B,

is to be made as at the effective time.

(5F) But if the swap arrangements make provision for an increase in the
non-licence consideration to reflect the period between the effective
25time and the time it is payable, the non-licence consideration is to be
treated as if it were the amount found by making a corresponding
increase in the amount determined under subsection (5E).”

4 The amendments made by this Part of this Schedule have effect in relation
to disposals made on or after 23 March 2011.

30Part 2 Reinvestment of ring fence assets

5 After section 198H of TCGA 1992 (acquisition by member of same group)
insert—

“198I Exploration, appraisal and development expenditure

(1) 35The incurring of exploration, appraisal and development
expenditure in the course of a ring fence trade is to be treated for the
purposes of sections 198A to 198H as the acquisition of assets—

(a) which are the new assets mentioned in section 152,

(b) which are taken into use, and used only, for the purposes of
40the ring fence trade,

(c) which are oil assets, and

(d) which fall within the classes of assets listed in section 155.

(2) The reference in subsection (1) to sections 198A to 198H includes
sections 152, 153, 175 and 198(1) so far as they apply for the purpose
of determining whether a disposal and acquisition qualifies for roll-
over relief or section 153 relief (within the meaning given in section
5198F or 198G).

(3) Section 198C has effect in relation to expenditure within subsection
(1) of this section as if subsection (5) of that section were omitted.

(4) References in this section to exploration, appraisal and development
expenditure are to expenditure on oil and gas exploration, appraisal
10and development activities which is treated as such under generally
accepted accounting practice.

(5) Nothing in this section affects sections 152, 153, 175 and 198(1) so far
as they apply otherwise than for the purposes of sections 198A to
198H.

(6) 15In this section—

• “oil asset” has the meaning given in section 198E(5);

• “ring fence trade” has the meaning given in section 198.”

6 The amendment made by this Part of this Schedule has effect in relation to
disposals made on or after 24 March 2010 (whether the deemed acquisition
20takes place before, on or after that date).

Section 65

SCHEDULE 16 Benefits under pension schemes

Part 1 Changes to benefits available under pension schemes etc

25Unsecured and alternatively secured pension to be replaced by drawdown pension

1 (1) In Part 4 of FA 2004 (pension schemes etc), section 165 (pension rules) is
amended as follows.

(2) In subsection (1)—

(a) in pension rule 4—

(i) 30for “If the member has not reached the age of 75, no payment
of pension” substitute “No payment of pension”, and

(ii) for paragraph (c) substitute—

“(c) drawdown pension,”;

(b) for pension rule 5 substitute—

35“Pension rule 5

The total amount of drawdown pension paid in each
drawdown pension year in respect of a money purchase
arrangement must not exceed 100% of the basis amount for
the drawdown pension year.”;

(c) omit pension rules 6 and 7.

(3) After subsection (3) insert—

“(3A) This subsection applies to an arrangement if—

(a) the member meets the flexible drawdown conditions,

(b) 5the member makes a valid declaration to the scheme
administrator to that effect, and

(c) the declaration is accepted by the scheme administrator.

(3B) The member meets the flexible drawdown conditions if—

(a) the member satisfied the minimum income requirement on
10the relevant day,

(b) no relevant contributions are paid under any money
purchase arrangement (other than a cash balance
arrangement) relating to the member under a registered
pension scheme in the tax year in which the declaration is
15made, and

(c) at the time of the declaration the member is not an active
member of any registered pension scheme under which there
is a defined benefits or cash balance arrangement relating to
the member.”

20Meaning of “drawdown pension”

2 Part 1 of Schedule 28 to FA 2004 (pension rules) is amended as follows.

3 (1) In paragraph 4 (meaning of “unsecured pension”), for ““Unsecured
pension”” substitute ““Drawdown pension””.

(2) The heading before paragraph 4 becomes “Drawdown pension”.

4 25In paragraph 6 (short-term annuity), in sub-paragraph (1)—

(a) in paragraph (a), for “member’s unsecured pension fund” substitute
“member’s drawdown pension fund”;

(b) in paragraph (d), omit “and ends before the member reaches the age
of 75”.

5 30For paragraph 7 (meaning of “income withdrawal”) substitute—

“7 Income withdrawal” means an amount (other than an annuity)
which the member is entitled to be paid from the member’s
drawdown pension fund in respect of an arrangement.”

Member’s drawdown pension fund

6 (1) 35In Part 1 of Schedule 28 to FA 2004, paragraph 8 (member’s unsecured
pension fund) is amended as follows.

(2) In sub-paragraph (1), for “member’s unsecured pension fund” substitute
“member’s drawdown pension fund”.

(3) In sub-paragraph (1A)(a), for “unsecured pension” substitute “drawdown
40pension”.

(4) Omit sub-paragraphs (2) and (3).

(5) In sub-paragraph (4), for “unsecured pension fund” (in each place)
substitute “drawdown pension fund”.

(6) The heading before paragraph 8 becomes “Member’s drawdown pension fund”.

Drawdown pension year and basis amount for drawdown pension year

7 (1) 5In Part 1 of Schedule 28 to FA 2004, paragraph 9 (unsecured pension year) is
amended as follows.

(2) In sub-paragraph (1)—

(a) for ““Unsecured pension year”” substitute ““Drawdown pension
year””;

(b) 10in paragraph (a), for “unsecured pension” substitute “drawdown
pension”;

(c) at the end insert—

“This is subject to paragraph 10B.”

(3) For sub-paragraph (2) substitute—

“(2) 15The drawdown pension year in which the member dies is the last
drawdown pension year and ends immediately before the
member’s death.”

(4) The heading before paragraph 9 becomes “Drawdown pension year and basis
amount for drawdown pension year”.

8 (1) 20Paragraph 10 of that Schedule (basis amount) is amended as follows.

(2) For sub-paragraph (1) substitute—

“(A1) This paragraph applies in relation to drawdown pension years
beginning on or before the member’s 75th birthday.

(1) Subject as follows, the period of three drawdown pension years
25beginning with the first drawdown pension year, and each
succeeding period of three drawdown pension years, is a
“reference period”.

(1ZA) But the reference period in which the member reaches the age of
75 ends with the drawdown pension year in which the member
30reaches that age.”

(3) In sub-paragraph (1B)(b)—

(a) after “subject to” insert “sub-paragraph (1ZA) and”;

(b) for “five unsecured pension years” (in both places) substitute “three
drawdown pension years”.

(4) 35In sub-paragraphs (2) and (4)—

(a) for “unsecured pension year” substitute “drawdown pension year”;

(b) for “member’s unsecured pension fund” substitute “member’s
drawdown pension fund”.

(5) In sub-paragraph (5)—

(a) 40for “an unsecured pension year” substitute “a drawdown pension
year”;

(b) for “that unsecured pension year” substitute “that drawdown
pension year”.

(6) In sub-paragraph (6)—

(a) for “unsecured pension year” substitute “drawdown pension year”;

(b) for “member’s unsecured pension fund” substitute “member’s
drawdown pension fund”.

(7) 5After sub-paragraph (6) insert—

“(6A) But sub-paragraph (5) does not apply where the operation of that
sub-paragraph in relation to an additional fund designation
during a drawdown pension year would reduce the basis amount
for that drawdown pension year.”

(8) 10In sub-paragraph (7), for “member’s unsecured pension fund” substitute
“member’s drawdown pension fund”.

(9) In sub-paragraph (8), for “unsecured pension” substitute “drawdown
pension”.

(10) In sub-paragraph (8A), for “member’s unsecured pension fund” substitute
15“member’s drawdown pension fund”.

(11) In sub-paragraph (9)(b), for “unsecured pension year” substitute
“drawdown pension year”.

(12) After sub-paragraph (10) insert—

“(11) Nothing in this paragraph applies in respect of an arrangement to
20which section 165(3A) applies.”

9 After paragraph 10 of that Schedule insert—

“10A (1) This paragraph applies in relation to drawdown pension years
beginning after the member’s 75th birthday.

(2) For the first drawdown pension year beginning after the member
25reached the age of 75, and each succeeding drawdown pension
year, the basis amount is the annual amount of the relevant
annuity which could have been purchased by the application of
the sums and assets representing the member’s drawdown
pension fund on the nominated date.

(3) 30In a case where the member first becomes entitled to drawdown
pension in respect of the arrangement after reaching the age of 75,
“the nominated date”, in relation to the first drawdown pension
year in respect of the arrangement, is the first day of that year.

(4) In any other case, “the nominated date”, in relation to the first
35drawdown pension year beginning after the member reached the
age of 75, is—

(a) if the member and the scheme administrator so agree, the
day immediately before the member’s 75th birthday, or

(b) if they do not so agree, such day within the period of 60
40days ending with the first day of the drawdown pension
year as is nominated by the scheme administrator (or, if no
day is nominated by the scheme administrator, the first
day of that year).

(5) “The nominated date”, in relation to each other drawdown
pension year, is such day within the period of 60 days ending with
the first day of the drawdown pension year as is nominated by the
scheme administrator (or, if no day is nominated by the scheme
5administrator, is the first day of that year).

(6) On the occasion of each additional fund designation during a
drawdown pension year, the basis amount of that drawdown
pension year is to be recalculated in accordance with sub-
paragraph (7).

(7) 10The basis amount for the drawdown pension year is the annual
amount of the relevant annuity which could have been purchased
by the application of the sums and assets representing the
member’s drawdown pension fund immediately after the
additional fund designation.

(8) 15But sub-paragraph (6) does not apply where the operation of that
sub-paragraph in relation to an additional fund designation
during a drawdown pension year would reduce the basis amount
for that drawdown pension year.

(9) “Additional fund designation” has the meaning given by
20paragraph 10(8).

(10) Paragraph 14 defines “relevant annuity”.

(11) Nothing in this paragraph applies in respect of an arrangement to
which section 165(3A) applies.

10B (1) This paragraph applies if the member has reached the age of 75.

(2) 25Sub-paragraph (3) applies if, at any time during a drawdown
pension year in respect of an arrangement (“the current
drawdown pension year”), the member notifies the scheme
administrator that the member wishes the drawdown pension
year following the current drawdown pension year to begin on the
30day on which the next drawdown pension year in respect of
another arrangement relating to the member under the pension
scheme (including any arrangement relating to that person as a
dependant) will begin.

(3) The scheme administrator may determine—

(a) 35that the current drawdown pension year is to end
immediately before that day, and

(b) that the period of 12 months beginning with that day, and
each succeeding period of 12 months, is a drawdown
pension year in respect of the arrangement.

(4) 40The scheme administrator may not make a determination under
this paragraph more than once in relation to the same
arrangement.”

Flexible drawdown: minimum income requirement etc

10 In Part 1 of Schedule 28 to FA 2004, after paragraph 14 insert—

“Minimum income requirement

14A (1) The member satisfies the minimum income requirement at any
5time in a tax year if the amount of relevant income payable to the
member for that tax year is not less than the minimum income
threshold.

(2) The minimum income threshold is £20,000.

(3) “Relevant income” means any of the following kinds of income—

(a) 10payments of a scheme pension or dependants’ scheme
pension provided by a registered pension scheme;

(b) payments of a lifetime annuity or dependants’ annuity
made by a registered pension scheme;

(c) payments under an overseas pension scheme which, if the
15scheme were a registered pension scheme, would fall
within paragraph (a) or (b);

(d) payments of a social security pension;

(e) payments under the financial assistance scheme which are
payable until the member’s death;

(f) 20payments made under that scheme in anticipation of, and
on account of, payments falling within paragraph (e).

(4) But “relevant income” does not include—

(a) drawdown pension or dependants’ drawdown pension, or

(b) any payments under an overseas pension scheme which, if
25the scheme were a registered pension scheme, would be
drawdown pension or dependants’ drawdown pension.

(5) A payment of any pension or annuity within sub-paragraph (3), or
a payment under the financial assistance scheme, is not to be
regarded as relevant income unless the member has, at any time
30before the time mentioned in sub-paragraph (1), already received
a payment of that pension or annuity or (as the case may be) a
payment under that scheme.

(6) For the purposes of sub-paragraph (1), the amount of any relevant
income payable in a currency other than sterling is to be taken to
35be the equivalent amount in sterling, calculated by reference to an
appropriate spot rate of exchange prevailing on the relevant day.

(7) In this paragraph—

• “financial assistance scheme” means the scheme provided for
  by regulations under section 286 of the Pensions Act 2004;

• 40“social security pension” means—

  (a)

  any pension, benefit or allowance to which section
  577 of ITEPA 2003 applies, and

  (b)

  any pension, benefit or allowance which—

  (i)

  is payable under the law of a country or
  45territory outside the United Kingdom, and

  Finance (No. 3) BillPage 247

  (ii)

  is substantially similar in character to a
  pension, benefit or allowance to which that
  section applies.

(8) Any regulations made under paragraph 7 of Schedule 34
5(application of Part 4 of this Act in relation to relevant non-UK
schemes) have effect for the purposes of sub-paragraphs (3)(c) and
(4)(b) of this paragraph as they have effect for the purposes of that
Schedule.

14B (1) The Treasury may by order amend paragraph 14A(2) so as to
10substitute a different amount for the amount for the time being
specified as the minimum income threshold.

(2) The Treasury may by regulations—

(a) amend paragraph 14A so as to add, vary or remove
descriptions of payments which are relevant income;

(b) 15provide that in prescribed circumstances the whole or part
of any relevant payment, or any relevant payment of a
prescribed description, is not to be regarded as relevant
income.

(3) In this paragraph—

• 20“prescribed” means prescribed in regulations made by the
  Treasury;

• “relevant payment” means a payment falling within
  paragraph 14A(3).

The relevant day

14C 25“The relevant day” means—

(a) in a case where subsection (3A) of section 165 has not
previously applied to an arrangement relating to the
member, the day on which the declaration referred to in
paragraph (b) of that subsection is made, and

(b) 30in a case where subsection (3A) of that section has
previously applied to such an arrangement, the day on
which that subsection first so applied.

Relevant contributions

14D “Relevant contributions” means—

(a) 35relievable pension contributions paid by or on behalf of the
member, or

(b) contributions paid in respect of the member by an
employer of the member.

Valid and accepted declarations

14E (1) 40A declaration is “valid” if it complies with such requirements as
may be prescribed by regulations made by the Commissioners for
Her Majesty’s Revenue and Customs.

(2) A declaration is accepted by the scheme administrator of a
registered pension scheme if, as a result of the making of the

declaration, the member becomes eligible to receive payments of
drawdown pension in respect of an arrangement under the
scheme which, but for the application of section 165(3A), would be
unauthorised member payments.”

5Dependants’ drawdown pension

11 (1) In Part 4 of FA 2004, section 167 (pension death benefit rules) is amended as
follows.

(2) In subsection (1)—

(a) in pension death benefit rule 3—

(i) 10for “If a dependant has not reached the age of 75, no payment
of pension death benefit to the dependant” substitute “No
payment of pension death benefit”,

(ii) for paragraph (c) substitute—

“(c) dependants’ drawdown pension,”, and

(iii) 15for “the dependant” substitute “a dependant”;

(b) for pension death benefit rule 4 substitute—

“Pension death benefit rule 4

The total amount of dependants’ drawdown pension paid to
a dependant in each drawdown pension year in respect of a
20money purchase arrangement must not exceed 100% of the
basis amount for the drawdown pension year.”;

(c) omit pension death benefit rules 5 and 6.

(3) After subsection (2) insert—

“(2A) This subsection applies to an arrangement if—

(a) 25the dependant meets the flexible drawdown conditions,

(b) the dependant makes a valid declaration to the scheme
administrator to that effect, and

(c) the declaration is accepted by the scheme administrator.

(2B) The dependant meets the flexible drawdown conditions if—

(a) 30the dependant satisfied the minimum income requirement
on the relevant day,

(b) no relevant contributions are paid under any money
purchase arrangement (other than a cash balance
arrangement) relating to the dependant under a registered
35pension scheme in the tax year in which the declaration is
made, and

(c) at the time of the declaration the dependant is not an active
member of any registered pension scheme under which there
is a defined benefits or cash balance arrangement relating to
40the dependant.”

Meaning of “dependants’ drawdown pension”

12 Part 2 of Schedule 28 to FA 2004 (pension death benefit rules) is amended as
follows.

13 (1) In paragraph 18 (meaning of “dependants’ unsecured pension”), for
““Dependants’ unsecured pension”” substitute ““Dependants’ drawdown
pension””.

(2) The heading before paragraph 18 becomes “Dependants’ drawdown pension”.

14 5In paragraph 20 (dependants’ short-term annuity), in sub-paragraph (1)—

(a) in paragraph (a), for “dependant’s unsecured pension fund”
substitute “dependant’s drawdown pension fund”;

(b) in paragraph (d), omit the words “reaches the age of 75 or”.

15 For paragraph 21 (meaning of “dependants’ income withdrawal”)
10substitute—

“21 Dependants’ income withdrawal” means an amount (other than
an annuity) which the dependant is entitled to be paid from the
dependant’s drawdown pension fund in respect of an
arrangement.”

15Dependant’s drawdown pension fund

16 (1) In Part 2 of Schedule 28 to FA 2004, paragraph 22 (dependant’s unsecured
pension fund) is amended as follows.

(2) In sub-paragraph (1), for “dependant’s unsecured pension fund” substitute
“dependant’s drawdown pension fund”.

(3) 20In sub-paragraph (2)(a), for “dependant’s unsecured pension” substitute
“dependants’ drawdown pension”.

(4) In sub-paragraph (3)—

(a) for “dependant’s unsecured pension fund” (in both places)
substitute “dependant’s drawdown pension fund”;

(b) 25in paragraph (a), for “an unsecured pension fund” substitute “a
drawdown pension fund”.

(5) The heading before paragraph 22 becomes “Dependant’s drawdown pension
fund”.

Drawdown pension year and basis amount for drawdown pension year

17 (1) 30In Part 2 of Schedule 28 to FA 2004, paragraph 23 (unsecured pension year)
is amended as follows.

(2) In sub-paragraph (1)—

(a) for ““Unsecured pension year”” substitute ““Drawdown pension
year””;

(b) 35in paragraph (a), for “dependants’ unsecured pension” substitute
“dependants’ drawdown pension”;

(c) at the end insert—

“This is subject to paragraph 24B.”

(3) For sub-paragraph (2) substitute—

“(2) 40The drawdown pension year in which the dependant dies is the
last drawdown pension year and ends immediately before the
dependant’s death.”