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Finance (No. 3) BillPage 260

(b) anything 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.

Lump sum death benefits to be payable to persons aged 75 or over

32 5Part 2 of Schedule 29 to FA 2004 (lump sum death benefit rule) is amended
as follows.

33 (1) Paragraph 13 (defined benefits lump sum death benefit) is amended as
follows.

(2) The existing text becomes sub-paragraph (1).

(3) 10In that sub-paragraph—

(a) omit paragraph (a);

(b) omit paragraph (c) (but not the “and” after it);

(c) at the end insert—

But, in a case where the member had not reached the age
15of 75 at the date of the member’s death, a lump sum death
benefit is a defined benefits lump sum death benefit only if
it is paid before the end of the relevant two-year period.

(4) After that sub-paragraph insert—

(2) The relevant two-year period” means the period of two years
20beginning with the earlier of the day on which the scheme
administrator first knew of the member’s death and the day on
which the scheme administrator could first reasonably be
expected to have known of it.

34 (1) Paragraph 14 (pension protection lump sum death benefit) is amended as
25follows.

(2) In sub-paragraph (1), omit paragraph (a).

(3) In sub-paragraph (3), for the definition of “AC” substitute—

35 (1) Paragraph 15 (uncrystallised funds lump sum death benefit) is amended as
follows.

(2) In sub-paragraph (1)—

(a) 40omit paragraphs (a) and (c);

(b) at the end of paragraph (d) insert , and

(e) it is not a charity lump sum death benefit.;

Finance (No. 3) BillPage 261

(c) at the end insert—

But, in a case where the member had not reached the age
of 75 at the date of the member’s death, a lump sum death
benefit is an uncrystallised funds lump sum death benefit
5only if it is paid before the end of the relevant two-year
period.

(3) After that sub-paragraph insert—

(1A) The relevant two-year period” means the period of two years
beginning with the earlier of the day on which the scheme
10administrator first knew of the member’s death and the day on
which the scheme administrator could first reasonably be
expected to have known of it.

36 (1) Paragraph 16 (annuity protection lump sum death benefit) is amended as
follows.

(2) 15In sub-paragraph (1), omit paragraph (a).

(3) In sub-paragraph (3), for the definition of “AC” substitute—

37 (1) Paragraph 17 (unsecured pension fund lump sum death benefit) is amended
as follows.

(2) 30For sub-paragraph (1) substitute—

(1) For the purposes of this Part a lump sum death benefit is a
drawdown pension fund lump sum death benefit if—

(a) it is paid in respect of income withdrawal to which the
member was entitled under an arrangement at the date of
35the member’s death, and

(b) it is not a charity lump sum death benefit.

(3) In sub-paragraph (2)—

(a) for “an unsecured pension fund lump sum death benefit” substitute
“a drawdown pension fund lump sum death benefit”;

(b) 40omit paragraph (b);

(c) at the end of paragraph (c) insert , and

(d) it is not a charity lump sum death benefit.

(4) In sub-paragraph (3), for “an unsecured pension fund lump sum death
benefit” substitute “a drawdown pension fund lump sum death benefit”.

(5) 45In sub-paragraph (4), for “unsecured pension fund” substitute “drawdown
pension fund”.

Finance (No. 3) BillPage 262

(6) The heading before paragraph 17 becomes “Drawdown pension fund lump sum
death benefit
”.

38 (1) Paragraph 18 (charity lump sum death benefit) is amended as follows.

(2) In sub-paragraph (1)—

(a) 5omit paragraph (a);

(b) in paragraph (c), for the words from “in respect of” to “Schedule 28)”
substitute “in respect of the member’s drawdown pension fund”;

(c) in paragraph (d), omit from “(or, if the member” to the end.

(3) After sub-paragraph (1) insert—

(1A) 10A lump sum death benefit is also a charity lump sum death benefit
if—

(a) the member had reached the age of 75 at the date of the
member’s death,

(b) there are no dependants of the member,

(c) 15it is paid in respect of relevant uncrystallised funds in
respect of a money purchase arrangement at the date of the
member’s death, and

(d) it is paid to a charity nominated by the member.

(1B) “Relevant uncrystallised funds” has the meaning given by
20paragraph 15(2).

(4) In sub-paragraph (2)—

(a) omit paragraph (b);

(b) in paragraph (d), for “the dependant’s alternatively secured pension
fund” substitute “the dependant’s drawdown pension fund”;

(c) 25in paragraph (e), omit from “(or, if neither the member” to the end.

(5) In sub-paragraph (4), for the words from “representing” to “pension fund”
substitute “representing what is the member’s or dependant’s drawdown
pension fund”.

39 In paragraph 20(1) (trivial commutation lump sum death benefit), omit—

(a) 30paragraph (a), and

(b) paragraph (c) (but not the “and” after it).

Serious ill-health lump sum charge

40 In Part 4 of FA 2004 (pension schemes etc), after section 205 insert—

205A Serious ill-health lump sum charge

(1) 35A charge to income tax, to be known as the serious ill-health lump
sum charge, arises where a serious ill-health lump sum is paid by a
registered pension scheme to a member who has reached the age of
75.

(2) The person liable to the serious ill-health lump sum charge is the
40scheme administrator.

(3) The scheme administrator is liable to the serious ill-health lump sum
charge whether or not—

(a) the scheme administrator, and

Finance (No. 3) BillPage 263

(b) the person to whom the serious ill-health lump sum is paid,

are resident, ordinarily resident or domiciled in the United
Kingdom.

(4) The rate of the charge is 55% in respect of the lump sum.

(5) 5The Treasury may by order increase or decrease the rate for the time
being specified in subsection (4).

(6) Tax under this section is to be charged on the amount of the lump
sum paid or, if the rules of the pension scheme permit the scheme
administrator to deduct the tax before payment, on the amount of the
10lump sum before deduction of tax.

(7) A serious ill-health lump sum paid to a member who has reached the
age of 75 is not to be treated as income for any purpose of the Tax
Acts.

Special lump sum death benefits charge

41 (1) 15In Part 4 of FA 2004, section 206 (special lump sum death benefits charge) is
amended as follows.

(2) In subsection (1), for paragraph (c) substitute—

(c) a drawdown pension fund lump sum death benefit,.

(3) After that subsection insert—

(1A) 20The special lump sum death benefits charge also arises where—

(a) a defined benefits lump sum death benefit, or

(b) an uncrystallised funds lump sum death benefit,

is paid by a registered pension scheme in respect of a member who
had reached the age of 75 at the date of the member’s death.

(4) 25In subsection (4), for “35%” substitute “55%”.

(5) For subsection (7) substitute—

(7) None of the following is to be treated as income for any purpose of
the Tax Acts—

(a) any lump sum death benefit mentioned in subsection (1);

(b) 30a defined benefits lump sum death benefit or uncrystallised
funds lump sum death benefit paid in respect of a member
who had reached the age of 75 at the date of the member’s
death.

Exemption from income tax of certain lump sums and lump sum death benefits

42 (1) 35Section 636A of ITEPA 2003 (exemption for certain lump sums under
registered pension schemes) is amended as follows.

(2) In subsection (1)—

(a) in paragraph (b), after “serious ill-health lump sum” insert “paid to a
member who has not reached the age of 75”;

(b) 40in paragraph (d), after “defined benefits lump sum death benefit”
insert “paid in respect of a member who had not reached the age of
75 at the date of the member’s death”;

Finance (No. 3) BillPage 264

(c) in paragraph (e), after “uncrystallised funds lump sum death
benefit” insert “paid in respect of such a member”.

(3) After subsection (3) insert—

(3A) A serious ill-health lump sum which is paid under a registered
5pension scheme to a member who has reached the age of 75 is subject
to income tax in accordance with section 205A of FA 2004 (charge to
tax on scheme administrator in respect of such a lump sum) but not
otherwise.

(4) In subsection (4)—

(a) 10before paragraph (a) insert—

(za) a defined benefits lump sum death benefit paid in
respect of a member who had reached the age of 75 at
the date of the member’s death,;

(b) after paragraph (a) insert—

(aa) 15an uncrystallised funds lump sum death benefit paid
in respect of a member who had reached the age of 75
at the date of the member’s death,;

(c) for paragraph (c) substitute—

(c) a drawdown pension fund lump sum death benefit,.

(5) 20In subsection (7)—

(a) after ““defined benefits lump sum death benefit”,” insert—

(b) after ““pension protection lump sum death benefit”,” insert “and”;

(c) omit ““unsecured pension fund lump sum death benefit”,” (and the
25“and” before it).

Lifetime allowance charge: benefit crystallisation events

43 In section 216 of FA 2004 (benefit crystallisation events and amounts
crystallised), in the table in subsection (1), after the entry for benefit
crystallisation event 5A insert—

5B. The individual reaching the
age of 75 when there is a money
purchase arrangement relating to
the individual under any of the
relevant pension schemes
30The amount of any remaining
unused funds.


44 (1) 35Schedule 32 to FA 2004 (benefit crystallisation events: supplementary) is
amended as follows.

(2) After paragraph 14 insert—

Benefit crystallisation event 5B: meaning of “remaining unused funds”

14A For the purposes of benefit crystallisation event 5B “remaining
40unused funds” means—

(a) in relation to a cash balance arrangement, a sum equal to
what would, on the valuation assumption in section 277(a),

Finance (No. 3) BillPage 265

be available for the provision of benefits to or in respect of
the member if the member became entitled to them on
reaching the age of 75, and

(b) in relation to any other arrangement, such of the sums and
5assets held for the purposes of the arrangement as are not
member-designated funds and have not been applied
towards the provision of a scheme pension or a
dependants’ scheme pension.

(3) After paragraph 15 insert—

10Benefit crystallisation event 6: prevention of overlap with other events

15A Benefit crystallisation event 6 does not apply in relation to a
pension commencement lump sum paid in respect of a money
purchase arrangement if—

(a) the individual becomes entitled to it before reaching the
15age of 75, but

(b) it is not paid to the individual until after the individual has
reached that age.

Annual allowance charge: persons meeting flexible drawdown conditions

45 (1) In section 227 of FA 2004 (annual allowance charge), at the end of subsection
20(4) insert—

But see section 227A (individuals who meet flexible drawdown
conditions).

(2) After section 227 insert—

227A Individuals who meet flexible drawdown conditions

(1) 25This section applies in the case of an individual in relation to whom
there is or has been a flexible drawdown arrangement under a
pension scheme.

In this section “flexible drawdown arrangement” means an
arrangement to which section 165(3A) or 167(2A) applies.

(2) 30For each tax year following the first tax year in which there was a
flexible drawdown arrangement in relation to the individual, section
227 applies to the individual as if the reference in subsection (4) of
that section to the amount by which the total pension input amount
exceeds the amount of the annual allowance were a reference to the
35amount in subsection (3) of this section.

(3) The amount referred to in subsection (2) is—


TPIA − RPIA

where—

  • TPIA is the total pension input amount for the tax year, and

  • 40RPIA is so much of the aggregate of the pension input amounts
    in respect of each defined benefits or cash balance
    arrangement relating to the individual under any registered
    pension scheme of which the individual is not an active
    member as does not exceed the annual allowance.

Finance (No. 3) BillPage 266

(4) For the tax year following the first tax year in which there was a
flexible drawdown arrangement in relation to the individual, the
reference in subsection (3) to a registered pension scheme of which
the individual is not an active member includes, in a case where the
5individual was an active member of a registered pension scheme at
any time during that first tax year but has not been such a member
since the relevant time, a reference to that registered pension scheme.

(5) In subsection (4) the “relevant time” is the time at which there first
began to be a flexible drawdown arrangement in relation to the
10individual.

Removal of certain charges to inheritance tax in respect of pension schemes

46 IHTA 1984 is amended as follows.

47 (1) Section 12 (dispositions allowable for income tax or conferring benefits
under pension scheme) is amended as follows.

(2) 15After subsection (2) insert—

(2ZA) Where a person who is a member of a registered pension scheme, a
qualifying non-UK pension scheme or a section 615(3) scheme omits
to exercise pension rights under the pension scheme, section 3(3)
above does not apply in relation to the omission.

(3) 20Omit subsections (2A) to (2E).

48 Omit the following provisions—

(a) section 151A (person dying with alternatively secured pension
fund);

(b) section 151B (relevant dependant with pension fund inherited from
25member over 75);

(c) section 151BA (rate or rates of charge under section 151B);

(d) section 151C (dependant dying with other pension fund);

(e) section 151D (unauthorised payment where person dies over 75 with
pension or annuity);

(f) 30section 151E (rate or rates of charge under section 151D).

Part 2 Consequential amendments

Inheritance Tax Act 1984

49 IHTA 1984 is amended as follows.

50 (1) 35Section 12 (dispositions allowable for income tax or conferring benefits
under pension scheme) is amended as follows.

(2) In subsection (2F), omit paragraph (b) (and the “and” before it).

(3) In subsection (2G)—

(a) omit the definitions of “lump sum death benefit”, “pension death
40benefit” and “relevant dependant”;

(b) in the definition of “pension”, for “that Part” substitute “Part 4”.

Finance (No. 3) BillPage 267

51 In section 151 (treatment of pension rights, etc), in subsection (2), for “Subject
to sections 151A and 151C below, an interest” substitute “An interest”.

52 In section 200 (transfer on death)—

(a) in subsection (1), omit “(subject to subsection (1A) below)”;

(b) 5omit subsection (1A).

53 In section 210 (pension rights, etc), omit subsections (2) and (3).

54 (1) Section 216 (delivery of accounts) is amended as follows.

(2) In subsection (1), omit paragraph (bca).

(3) In subsection (3)(a), omit “(or would do apart from section 151A(3)(b) or
10151C(3)(b) above)”.

(4) In subsection (4), omit “(or would be apart from section 151A(3)(b),
151C(3)(b) or 151B(4) above)”.

(5) In subsection (6), omit paragraph (ac).

(6) In subsection (7), for “, 126 or 151D” substitute “or 126”.

55 15In section 226 (payment: general rules), in subsection (4)—

(a) for “, 126, 151B or 151D” substitute “or 126”;

(b) omit from “, or under section 151A” to “that section,”.

56 In section 233 (interest on unpaid tax), in subsection (1)(c)—

(a) for “, 126, 151B or 151D” substitute “or 126”;

(b) 20omit from “, or under section 151A” to “that section,”.

57 In section 272 (general interpretation), omit the definition of “scheme
administrator”.

Pension Schemes Act 1993

58 Until such time as the repeal of section 28A of the Pension Schemes Act 1993
25(requirements for interim arrangements) by paragraph 11 of Schedule 4 to
the Pensions Act 2007 has effect for all purposes, subsection (3) of that
section has effect with the following amendments—

(a) in paragraph (a)—

(i) for “unsecured pension year” substitute “drawdown pension
30year”,

(ii) after “twelve months” insert “(disregarding the second
sentence of pension rule 5)”, and

(iii) for “where the member has not reached the age of 75,”
substitute “or”;

(b) 35in paragraph (c)—

(i) for “unsecured pension year” substitute “drawdown pension
year”,

(ii) after “twelve months” insert “(disregarding the second
sentence of pension death benefit rule 4)”, and

(iii) 40omit “and the member’s widow, widower or surviving civil
partner has not reached the age of 75, or”;

(c) omit paragraphs (b) and (d).

Finance (No. 3) BillPage 268

Pension Schemes (Northern Ireland) Act 1993

59 Until such time as the repeal of section 24A of the Pension Schemes
(Northern Ireland) Act 1993 (requirements for interim arrangements) by
paragraph 11 of Schedule 4 to the Pensions Act (Northern Ireland) 2008 has
5effect for all purposes, subsection (3) of that section has effect with the
following amendments—

(a) in paragraph (a)—

(i) for “unsecured pension year” substitute “drawdown pension
year”,

(ii) 10after “twelve months” insert “(disregarding the second
sentence of pension rule 5)”, and

(iii) for “where the member has not reached the age of 75,”
substitute “or”;

(b) in paragraph (c)—

(i) 15for “unsecured pension year” substitute “drawdown pension
year”,

(ii) after “twelve months” insert “(disregarding the second
sentence of pension death benefit rule 4)”, and

(iii) omit “and the member’s widow, widower or surviving civil
20partner has not reached the age of 75, or”;

(c) omit paragraphs (b) and (d).

Income Tax (Earnings and Pensions) Act 2003

60 (1) Section 683 of ITEPA 2003 (PAYE income) is amended as follows.

(2) In subsection (3), for “subsections (3A) and (4)” substitute “subsections (3A)
25and (3B)”.

(3) After subsection (3A) insert—

(3B) PAYE pension income” for a tax year does not include any taxable
pension income which is treated as accruing in that tax year by
section 579CA (temporary non-residents).

61 30In Part 2 of Schedule 1 to ITEPA 2003 (index of defined expressions), at the
appropriate place insert—

dependants’ income
withdrawal (in Chapter
5A of Part 9)
section 579D”;

“income withdrawal (in
Chapter 5A of Part 9)
35section 579D.

Finance Act 2004

62 Part 4 of FA 2004 (pension schemes etc) is amended as follows.

63 In section 164 (authorised member payments), in subsection (2)(b), after “the
40short service refund lump sum charge” insert “, the serious ill-health lump
sum charge”.

Finance (No. 3) BillPage 269

64 In section 165 (pension rules), in subsection (3)(a), for “unsecured pension”
substitute “drawdown pension”.

65 In section 168(1) (lump sum death benefit rule), for paragraph (e)
substitute—

(e) 5a drawdown pension fund lump sum death benefit,.

66 In section 169 (recognised transfers), in subsection (1D)—

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

(b) 10omit paragraph (b) (and the “or” before it).

67 (1) Section 172B (increase in rights of connected person on death) is amended as
follows.

(2) In subsection (2)(b), for “member’s unsecured pension fund or dependant’s
unsecured pension fund” substitute “member’s drawdown pension fund or
15dependant’s drawdown pension fund”.

(3) In subsection (7A)—

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

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

(4) Omit subsection (8A).

68 Omit section 172BA (increase in rights on death arising from alternatively
secured pension fund etc).

69 25Omit section 181A (minimum level of payment of alternatively secured
pensions).

70 (1) Section 182 (unauthorised borrowing: money purchase arrangements) is
amended as follows.

(2) In subsection (3)—

(a) 30in paragraph (a), for “member’s unsecured pension fund or
alternatively secured pension fund” substitute “member’s
drawdown pension fund”;

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