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

(4) The heading before paragraph 23 becomes “Drawdown pension year and basis
amount for drawdown pension year”.

18 (1) Paragraph 24 of that Schedule (basis amount) is amended as follows.

(2) For sub-paragraph (1) substitute—

“(A1) 5This paragraph applies in relation to drawdown pension years
beginning on or before the dependant’s 75th birthday.

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

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

(3) In sub-paragraph (1B)(b)—

(a) 15after “subject to” insert “sub-paragraph (1ZA) and”;

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

(4) In sub-paragraphs (2) and (4)—

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

(b) 20for “dependant’s unsecured pension fund” substitute “dependant’s
drawdown pension fund”.

(5) In sub-paragraph (5)—

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

(b) 25for “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 “dependant’s unsecured pension fund” substitute “dependant’s
30drawdown pension fund”.

(7) After 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
35for that drawdown pension year.”

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

(9) In sub-paragraph (8)—

(a) for “sums and assets” substitute “sums or assets”;

(b) 40for “unsecured dependants’ pension” substitute “dependants’
drawdown pension”.

(10) In sub-paragraph (8A), for “dependant’s unsecured pension fund”
substitute “dependant’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
5which section 167(2A) applies.”

19 After paragraph 24 of that Schedule insert—

“24A (1) This paragraph applies in relation to drawdown pension years
beginning after the dependant’s 75th birthday.

(2) For each drawdown pension year beginning after the dependant
10reached the age of 75, 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 dependant’s
drawdown pension fund on the nominated date.

(3) “The nominated date” is such day within the period of 60 days
15ending 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, is the first day of that
year).

(4) On the occasion of each additional fund designation during a
20drawdown pension year, the basis amount of that drawdown
pension year is to be recalculated in accordance with sub-
paragraph (5).

(5) The basis amount for the drawdown pension year is the annual
amount of the relevant annuity which could have been purchased
25by the application of the sums and assets representing the
dependant’s drawdown pension fund immediately after the
additional fund designation.

(6) But sub-paragraph (4) does not apply where the operation of that
sub-paragraph in relation to an additional fund designation
30during a drawdown pension year would reduce the basis amount
for that drawdown pension year.

(7) “Additional fund designation” has the meaning given by
paragraph 24(8).

(8) Paragraph 14 defines “relevant annuity”.

(9) 35Nothing in this paragraph applies in respect of an arrangement to
which section 167(2A) applies.

24B (1) This paragraph applies if the dependant has reached the age of 75.

(2) Sub-paragraph (3) applies if, at any time during a drawdown
pension year in respect of an arrangement (“the current
40drawdown pension year”), the dependant notifies the scheme
administrator that the dependant wishes the drawdown pension
year following the current drawdown pension year to begin on the
day on which the next drawdown pension year in respect of
another arrangement relating to the dependant under the pension

scheme (including any arrangement relating to that person as a
member of the scheme) will begin.

(3) The scheme administrator may determine—

(a) that the current drawdown pension year is to end
5immediately 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) The scheme administrator may not make a determination under
10this paragraph more than once in relation to the same
arrangement.”

Flexible drawdown: minimum income requirement etc

20 In Part 2 of Schedule 28 to FA 2004, after paragraph 24B insert—

“Minimum income requirement

24C (1) 15The dependant satisfies the minimum income requirement at any
time in a tax year if the amount of relevant income payable to the
dependant for that tax year is not less than the minimum income
threshold.

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

(3) 20“Relevant income” means any of the following kinds of income—

(a) payments 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) 25payments under an overseas pension scheme which, if the
scheme 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
30payable until the dependant’s death;

(f) payments 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) 35any payments under an overseas pension scheme which, if
the 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
40regarded as relevant income unless the dependant has, at any time
before 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
45income payable in a currency other than sterling is to be taken to

be 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
  5by regulations under section 286 of the Pensions Act 2004;

• “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)

  10is payable under the law of a country or
  territory outside the United Kingdom, and

  (ii)

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

(8) 15Any regulations made under paragraph 7 of Schedule 34
(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.

24D (1) 20The Treasury may by order amend paragraph 24C(2) so as to
substitute 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 24C so as to add, vary or remove
25descriptions of payments which are relevant income;

(b) provide 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) 30In this paragraph—

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

• “relevant payment” means a payment falling within
  paragraph 24C(3).

35The relevant day

24E “The relevant day” means—

(a) in a case where subsection (2A) of section 167 has not
previously applied to an arrangement relating to the
dependant, the day on which the declaration referred to in
40paragraph (b) of that subsection is made, and

(b) in a case where subsection (2A) of that section has
previously applied to such an arrangement, the day on
which that subsection first so applied.

Relevant contributions

24F 45“Relevant contributions” means—

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

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

5Valid and accepted declarations

24G (1) A 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
10registered pension scheme if, as a result of the making of the
declaration, the dependant becomes eligible to receive payments
of dependants’ drawdown pension in respect of an arrangement
under the scheme which, but for the application of section
167(2A), would be unauthorised member payments.”

15Foreign pensions: temporary non-residents

21 (1) In Part 9 of ITEPA 2003 (pension income), Chapter 4 (foreign pensions:
general rules) is amended as follows.

(2) In section 574 (“pension”: interpretation)—

(a) for subsection (1) substitute—

“(1) 20For the purposes of this Chapter “pension” includes—

(a) an annuity under, or purchased with sums or assets
held for the purposes of, or representing acquired
rights under, a relevant non-UK scheme or an
overseas pension scheme,

(b) 25an amount paid under a relevant non-UK scheme or
an overseas pension scheme which, if the scheme
were a registered pension scheme, would be income
withdrawal or dependants’ income withdrawal
(within the meaning of paragraphs 7 and 21 of
30Schedule 28 to FA 2004), and

(c) if conditions A and B are met, a pension which is paid
voluntarily or is capable of being discontinued.”;

(b) for subsection (4) substitute—

“(4) In this section—

• 35“office” includes in particular any position which has an
  existence independent of the person who holds it and
  may be filled by successive holders;

• “overseas pension scheme” has the same meaning as in
  Part 4 of FA 2004 (see section 150(7) of that Act);

• 40“relevant non-UK scheme” is to be read in accordance
  with paragraph 1(5) of Schedule 34 to FA 2004.”

(3) In section 575(1) (taxable pension income), at the end insert “and section
576A”.

(4) After section 576 insert—

“576A Temporary non-residents

(1) If this section applies in relation to a tax year, any relevant non-UK
income withdrawal under a relevant non-UK scheme which—

(a) 5is paid to a person in respect of a flexible drawdown
arrangement relating to the person under the scheme,

(b) is paid in a year of non-residence, and

(c) would not, apart from this section, be chargeable to tax under
this Part,

10is to be treated for the purposes of section 575 as if it arose in that tax
year.

(2) This section applies in relation to a tax year if—

(a) the person satisfies the residence requirements for the tax
year (“the year of return”),

(b) 15the person did not satisfy those requirements for one or more
tax years immediately before the year of return but did
satisfy those requirements for an earlier tax year,

(c) there are fewer than 5 tax years between—

(i) the last tax year before the year of return for which the
20person satisfied those requirements (“the year of
departure”), and

(ii) the year of return, and

(d) the person satisfied those requirements for at least 4 out of
the 7 tax years immediately before the year of departure.

(3) 25For the purposes of this section—

(a) a person satisfies the residence requirements for a tax year if
the person—

(i) is resident in the United Kingdom during that year,
and

(ii) 30is not Treaty non-resident at any time in that year;

(b) a person is Treaty non-resident at any time if, at that time, the
person falls to be regarded as resident in a territory outside
the United Kingdom for the purposes of double taxation
relief arrangements having effect at that time.

(4) 35If—

(a) section 809B, 809D or 809E of ITA 2007 (remittance basis)
applies to the person for the year of return, and

(b) the person—

(i) is not domiciled in the United Kingdom in that year,
40or

(ii) is not ordinarily resident in the United Kingdom in
that year,

any amounts of relevant non-UK income withdrawal falling within
subsection (1) which were remitted in a year of non-residence are
45treated as remitted in the year of return.

(5) This section does not apply to any relevant non-UK income
withdrawal paid to or in respect of a relieved member of a relevant

non-UK scheme unless the payment is referable to the member’s UK
tax-relieved fund under the scheme.

(6) This section does not apply to any relevant non-UK income
withdrawal paid to or in respect of a transfer member of a relevant
5non-UK scheme unless the payment is referable to the member’s
relevant transfer fund under the scheme.

(7) Nothing in any double taxation relief arrangements is to be read as
preventing the person from being chargeable to income tax in respect
of any relevant non-UK income withdrawal treated by virtue of this
10section as arising in the year of return (or as preventing a charge to
that tax from arising as a result).

(8) In this section—

• “double taxation relief arrangements” means arrangements that
  have effect under section 2(1) of TIOPA 2010;

• 15“flexible drawdown arrangement” means an arrangement to
  which section 165(3A) or 167(2A) of FA 2004 applies;

• “member’s relevant transfer fund” has the same meaning as in
  Schedule 34 to FA 2004 (see paragraph 4(2) of that Schedule);

• “member’s UK tax-relieved fund” has the same meaning as in
  20that Schedule (see paragraph 3(2));

• “relevant non-UK income withdrawal”, in relation to a relevant
  non-UK scheme, means an amount paid under the scheme
  which, if the scheme were a registered pension scheme,
  would be income withdrawal or dependants’ income
  25withdrawal (within the meaning of paragraphs 7 and 21 of
  Schedule 28 to FA 2004);

• “relevant non-UK scheme” is to be read in accordance with
  paragraph 1(5) of Schedule 34 to FA 2004;

• “relieved member” and “transfer member” have the same
  30meaning as in that Schedule (see paragraph 1(7) and (8));

• “year of non-residence” means any tax year which falls between
  the year of departure and the year of return.”

Pensions under registered pension schemes: temporary non-residents

22 (1) In Part 9 of ITEPA 2003 (pension income), Chapter 5A (pensions under
35registered pension schemes) is amended as follows.

(2) In section 579B (taxable pension income), at the end insert—

“This is subject to section 579CA.”

(3) After section 579C insert—

“579CA Temporary non-residents

(1) 40If this section applies in relation to a tax year, any income withdrawal
or dependants’ income withdrawal under the registered pension
scheme which—

(a) is paid to a person in respect of a flexible drawdown
arrangement relating to the person under the scheme,

(b) 45is paid in a year of non-residence, and

(c) would not, apart from this section, be chargeable to tax under
this Part,

is to be treated for the purposes of section 579B as if it accrued in that
tax year.

(2) 5This section applies in relation to a tax year if—

(a) the person satisfies the residence requirements for the tax
year (“the year of return”),

(b) the person did not satisfy those requirements for one or more
tax years immediately before the year of return but did
10satisfy those requirements for an earlier tax year,

(c) there are fewer than 5 tax years between—

(i) the last tax year before the year of return for which the
person satisfied those requirements (“the year of
departure”), and

(ii) 15the year of return, and

(d) the person satisfied those requirements for at least 4 out of
the 7 tax years immediately before the year of departure.

(3) For the purposes of this section—

(a) a person satisfies the residence requirements for a tax year if
20the person—

(i) is resident in the United Kingdom during that year,
and

(ii) is not Treaty non-resident at any time in that year;

(b) a person is Treaty non-resident at any time if, at that time, the
25person falls to be regarded as resident in a territory outside
the United Kingdom for the purposes of double taxation
relief arrangements having effect at that time.

(4) Nothing in any double taxation relief arrangements is to be read as
preventing the person from being chargeable to income tax in respect
30of any income withdrawal or dependants’ income withdrawal
treated by virtue of this section as accruing in the year of return (or
as preventing a charge to that tax from arising as a result).

(5) In this section—

• “double taxation relief arrangements” means arrangements that
  35have effect under section 2(1) of TIOPA 2010;

• “flexible drawdown arrangement” means an arrangement to
  which section 165(3A) or 167(2A) of FA 2004 applies;

• “year of non-residence” means any tax year which falls between
  the year of departure and the year of return.”

(4) 40For section 579D (interpretation) substitute—

“579D Interpretation

In this Chapter—

• “dependants’ income withdrawal” has the meaning given by
  paragraph 21 of Schedule 28 to FA 2004;

• 45“income withdrawal” has the meaning given by paragraph 7 of
  that Schedule;

• “pension under a registered pension scheme” includes—

  Finance (No. 3) BillPage 258

  (a)

  an annuity under, or purchased with sums or assets
  held for the purposes of, or representing acquired
  rights under, a registered pension scheme, and

  (b)

  income withdrawal or dependants’ income
  5withdrawal under a registered pension scheme.”

Lump sums to be payable to persons aged 75 or over

23 Part 1 of Schedule 29 to FA 2004 (lump sum rule) is amended as follows.

24 (1) Paragraph 1 (pension commencement lump sum) is amended as follows.

(2) In sub-paragraph (1)—

(a) 10omit paragraph (a);

(b) in paragraph (b), after “available” insert “(but see sub-paragraph
(3A))”.

(3) After sub-paragraph (3) insert—

“(3A) In a case where—

(a) 15the member becomes entitled to a lump sum before
reaching the age of 75, but

(b) it is not paid to the member until after the member has
reached that age,

the reference in sub-paragraph (1)(b) to the lump sum being paid
20is to be read as a reference to the member becoming entitled to it.”

(4) In sub-paragraph (6), for the words from “even though” to the end substitute
“even though the condition in sub-paragraph (1)(c) is not met.”

25 In paragraph 2 (pension commencement lump sum: calculation of permitted
maximum), after sub-paragraph (7) insert—

“(7A) 25For the purposes of determining the available portion of the
member’s lump sum allowance—

(a) the fact that benefit crystallisation event 5 or benefit
crystallisation event 5B has occurred in relation to the
member is to be disregarded, and

(b) 30anything which, but for paragraph 2 or 15A of Schedule 32,
would have been a benefit crystallisation event is to be
treated as if it were such an event.”

26 In paragraph 3 (pension commencement lump sum: calculation of
applicable amount), in sub-paragraph (7), for the definition of “AC”
35substitute—

• “AC is—

  (a)

  in a case where the member becomes entitled to the
  pension before reaching the age of 75, the amount
  crystallised by reason of the member becoming
  40entitled to the pension, disregarding paragraph 3 of
  Schedule 32, and

  (b)

  in a case where the member becomes entitled to the
  pension after reaching that age, the amount that
  would have been so crystallised (disregarding that
  45paragraph) but for paragraph 2 of that Schedule.”

27 (1) Paragraph 3A (recycling of pension commencement lump sums) is amended
as follows.

(2) In sub-paragraph (2), for “sub-paragraphs (3) and (4)” substitute “sub-
paragraphs (3) to (4A)”.

(3) 5After sub-paragraph (4) insert—

“(4A) This paragraph does not apply if—

(a) the member has reached the age of 75 when the
contributions are paid as mentioned in sub-paragraph
(2)(a), and

(b) 10the contributions are not paid by an employer of the
member.”

(4) For sub-paragraph (5) substitute—

“(5) The appropriate amount” is—

(a) where the member becomes entitled to the lump sum
15before reaching the age of 75, so much of the amount
crystallised by the benefit crystallisation event constituted
by its payment (or the amount that would have been so
crystallised but for paragraph 15A of Schedule 32) as does
not exceed the amount of the member’s lifetime allowance
20which is available on it;

(b) where the member becomes entitled to the lump sum after
reaching that age, the amount of the lump sum.”

28 (1) Paragraph 4 (serious ill-health lump sum) is amended as follows.

(2) In sub-paragraph (1)—

(a) 25at the end of paragraph (c) insert “and”;

(b) omit paragraph (e) (and the “and” before it).

(3) After sub-paragraph (2) insert—

“(3) For the purposes of sub-paragraph (2)—

(a) the fact that benefit crystallisation event 5 or benefit
30crystallisation event 5B has occurred in relation to the
member is to be disregarded, and

(b) anything which, but for paragraph 2 of Schedule 32, would
have been a benefit crystallisation event is to be treated as
if it were such an event.”

29 35In paragraph 7 (trivial commutation lump sum), in sub-paragraph (1)(e),
omit “but has not reached the age of 75”.

30 In paragraph 10(1) (winding-up lump sum)—

(a) at the end of paragraph (d) insert “and”;

(b) omit paragraph (f) (and the “and” before it).

31 40In paragraph 12 (interpretation of Part 1), after sub-paragraph (1) insert—

“(1A) For the purposes of determining whether all or part of the
member’s lifetime allowance is available—

(a) the fact that benefit crystallisation event 5 or benefit
crystallisation event 5B has occurred in relation to the
45member is to be disregarded, and