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

(i) the reference to the reference date were a reference to the day
on which the last unsecured pension year began, and

(ii) the reference to the immediately preceding drawdown
pension year included, in the case of a drawdown pension
5year beginning on 6 April 2011, a reference to the last
unsecured pension year.

(8) In paragraph 24(7) to (8A) of that Schedule any reference to dependants’
drawdown pension or the dependant’s drawdown pension fund is to be
read as including, in relation to anything occurring before 6 April 2011, a
10reference to dependants’ unsecured pension or the dependant’s unsecured
pension fund.

99 (1) This paragraph applies in the case of a person who—

(a) reached the age of 75 on or after 22 June 2010 and before 6 April 2011,
and

(b) 15immediately before 6 April 2011, was entitled to dependants’
unsecured pension.

(2) Where the last unsecured pension year began on or after 7 April 2010—

(a) pension death benefit rule 4 in section 167 of FA 2004 has effect in
relation to that year as if for “100%” there were substituted “120%”,
20and

(b) for the purposes of that pension death benefit rule, the amount
which, immediately before 6 April 2011, was the basis amount for
that year by virtue of paragraph 24 of Schedule 28 to FA 2004
continues, on and after that date, to be the basis amount for that year.

(3) 25The amendments made by paragraph 19 of this Schedule have effect in
relation to drawdown pension years beginning on or after 6 April 2011.

Current alternatively secured pension year to become drawdown pension year

100 (1) This paragraph applies in the case of a person who, immediately before 6
April 2011, was entitled to dependants’ alternatively secured pension.

(2) 30Where the last alternatively secured pension year began on or after 7 April
2010, the reference in paragraph 23(1)(a) of Schedule 28 to FA 2004
(drawdown pension year) to the day on which the dependant first becomes
entitled to drawdown pension is to be read as a reference to the day on
which that alternatively secured pension year began.

(3) 35Accordingly, any alternatively secured pension year which began on or after
7 April 2010 is to be regarded, on and after 6 April 2011, as a drawdown
pension year.

(4) For the purposes of pension death benefit rule 4 in section 167 of FA 2004,
the amount which, immediately before 6 April 2011, was the basis amount
40for that alternatively secured pension year by virtue of paragraph 27 of
Schedule 28 to FA 2004 continues, on and after that date, to be the basis
amount for that year.

(5) In this paragraph “the last alternatively secured pension year” means the
alternatively secured pension year in which 5 April 2011 fell.

Lump sums and lump sum death benefits

101 The amendments made by paragraphs 24 to 26, 31 and 79(2) and (3) have
effect in relation to any lump sum to which a person becomes entitled for the
purposes of Part 4 of FA 2004 on or after 6 April 2011.

102 5The amendments made by paragraphs 27 to 30, 40, 42(2)(a) and (3), 63, 77(4),
81(2) and (4), 82(3) to (5) and 83 have effect in relation to lump sums paid on
or after 6 April 2011.

103 The amendments made by paragraphs 33 to 39, 41, 42(2)(b) and (c), (4) and
(5), 65, 67, 68, 75(a), 76, 77(5), 79(4) and 82(6) have effect in relation to deaths
10occurring on or after 6 April 2011.

Lifetime allowance charge

104 (1) The amendments made by paragraphs 43, 44, 73, 80 and 82(2) have effect in
relation to benefit crystallisation events occurring on or after 6 April 2011.

(2) Any reference in a provision within sub-paragraph (3) to an amount
15previously crystallised on the designation of sums or assets as available for
the payment of drawdown pension includes a reference to an amount
crystallised before 6 April 2011 on the designation of sums or assets as
available for the payment of unsecured pension.

(3) The provisions are—

(a) 20paragraph 3(2) of Schedule 32 to FA 2004 (benefit crystallisation
events 1 and 2: prevention of overlap);

(b) paragraph 4(2) of that Schedule (benefit crystallisation events 1 and
4: prevention of overlap);

(c) paragraph 17(2) of that Schedule (benefit crystallisation event 8:
25prevention of overlap with other events).

Inheritance tax

105 The amendments made by paragraphs 47 and 50 have effect in relation to
dispositions made (or treated as made) on or after 6 April 2011.

106 The amendments made by paragraphs 48 and 51 to 57 have effect in relation
30to deaths occurring on or after 6 April 2011.

Consequential repeals

107 Any repeal in paragraph 84 has effect to the same extent as the provision of
this Schedule to which the repeal relates.

Power to make retrospective provision in orders and regulations under Part 4 of FA 2004

108 (1) 35This paragraph applies to any order or regulations under Part 4 of FA 2004
which—

(a) are made in the tax year beginning on 6 April 2011, and

(b) are made in consequence of, or for the purposes of, or for giving full
effect to, the amendments of that Part made by this Schedule.

(2) 40Section 282 of that Act (orders and regulations) has effect in relation to any
order or regulations to which this paragraph applies as if in subsection (A1)

the words “if that provision does not increase any person’s liability to tax”
were omitted.

Application of rules of pension schemes

109 (1) The trustees or managers of a registered pension scheme may make any
5payment under the scheme which, by virtue of the amendments made by
this Schedule, is an authorised member payment (within the meaning of
section 164 of FA 2004), despite any provision of the rules of the pension
scheme (however framed) prohibiting the making of such a payment.

(2) In the case of a personal pension scheme within the meaning of section 1 of
10the Pension Schemes Act 1993, nothing in subsection (1) of section 28 of that
Act (ways of giving effect to protected rights) is to be taken to prevent the
trustees or managers of the scheme from giving effect to the protected rights
of a member of the scheme in the way provided for by subsection (1A) of that
section.

(3) 15In the case of a personal pension scheme within the meaning of section 1 of
the Pension Schemes (Northern Ireland) Act 1993, nothing in subsection (1)
of section 24 of that Act (ways of giving effect to protected rights) is to be
taken to prevent the trustees or managers of the scheme from giving effect
to the protected rights of a member of the scheme in the way provided for
20by subsection (1A) of that section.

Section 66

SCHEDULE 17 Annual allowance charge

Part 1 Amendments

1 25Part 4 of FA 2004 (pension schemes etc) is amended as follows.

2 In section 172D(4)(b) (limit on increase in benefits), for “236” substitute
“236A”.

3 (1) Section 227 (annual allowance charge) is amended as follows.

(2) Omit subsections (2) and (3).

(3) 30In subsection (4), for “rate of 40%” substitute “appropriate rate”.

(4) After that subsection insert—

“(4A) The appropriate rate is—

(a) the basic rate in relation to so much (if any) of the excess as,
when added to the individual’s reduced net income for the
35tax year, does not exceed the basic rate limit for the tax year,

(b) the higher rate in relation to so much (if any) of the excess as,
when so added, exceeds the basic rate limit for the tax year
but does not exceed the higher rate limit for the tax year, and

(c) the additional rate in relation to so much (if any) of the excess
as, when so added, exceeds the higher rate limit for the tax
year.

(4B) The individual’s reduced net income for the tax year is the amount
5after taking Step 3 in section 23 of ITA 2007 in the case of the
individual for the tax year.

(4C) Where the basic rate limit or the higher rate limit for the tax year is
(in accordance with section 192 of this Act or section 414 of ITA 2007)
increased in the case of the individual, the references to the limit in
10subsection (4A) are to the limit as so increased.”

(5) Omit subsections (5A) and (5B).

(6) In subsection (6), after the entry relating to sections 230 to 237 (before the
“and”) insert—

• “sections 237A to 237F (persons liable to charge),”.

4 15For section 228 substitute—

“228 Annual allowance

(1) The annual allowance for the tax year 2011-12 and, subject to
subsection (2), each subsequent tax year is £50,000.

(2) The Treasury may by order provide that the annual allowance for
20any tax year subsequent to the tax year 2011-12 is such amount as is
specified in the order.”

5 After that section insert—

“228A Carry forward of unused annual allowance

(1) This section applies if the individual has unused annual allowance
25available for the tax year (“the current tax year”).

(2) The annual allowance for the current tax year in the case of the
individual is to be treated as increased by the amount of the unused
annual allowance available for the current tax year.

(3) The individual has unused annual allowance available for the
30current tax year if—

(a) the amount of the annual allowance (before any increase
under this section) for the immediately preceding tax year
exceeded the total pension input amount in the case of the
individual for that tax year, or

(b) 35the amount of the annual allowance (before any such
increase) for either or both of the two tax years immediately
preceding that immediately preceding tax year exceeded the
total pension input amount in the case of the individual for
the tax year concerned and the excess (or, where there is an
40excess for both of those tax years, the excess for both tax
years) has not been used up,

or both.

(4) Subsection (3)—

(a) does not apply in relation to a tax year preceding the current
tax year unless the individual was a member of a registered
pension scheme at some time during that tax year, but

(b) subject to that, applies in relation to such a tax year even if the
5total pension input amount in the case of the individual for
that tax year was nil (in which case the excess within
paragraph (a) or (b) of that subsection is the whole amount of
the annual allowance before any increase under this section).

(5) The amount of the unused annual allowance available for the current
10tax year is the aggregate of—

(a) any excess within subsection (3)(a), and

(b) so much of any excess within subsection (3)(b) as has not
been used up.

(6) An amount of an excess within subsection (3)(b) for a tax year has
15been “used up” if—

(a) for a tax year falling between that tax year and the current tax
year (an “intervening tax year”), the total pension input
amount in the case of the individual exceeded the annual
allowance (apart from any increase under this section), and

(b) 20the amount of the excess had effect by virtue of this section to
reduce (or eliminate) the annual allowance charge for the
intervening tax year in the case of the individual.

(7) In calculating for the purposes of subsection (6) the amount of which
of the excesses for different tax years had effect to reduce or eliminate
25the annual allowance charge for an intervening tax year, an amount
of the excess for an earlier tax year is to be taken to have done so
before that for a later tax year.”

6 (1) Section 229 (total pension input amount) is amended as follows.

(2) In subsection (2)(c), for “236” substitute “236A”.

(3) 30In subsection (3), for paragraph (a) substitute—

“(a) satisfies the severe ill-health condition, or”.

(4) After that subsection insert—

“(4) For the purposes of subsection (3)(a) the individual satisfies the
severe ill-health condition if the individual—

(a) 35becomes entitled to all the benefits to which the individual is
entitled under the arrangement in consequence of the scheme
administrator having received evidence from a registered
medical practitioner that the individual is suffering from ill-
health which makes the individual unlikely to be able
40(otherwise than to an insignificant extent) to undertake
gainful work (in any capacity) before reaching pensionable
age,

(b) becomes entitled to a serious ill-health lump sum under the
arrangement, or

(c) 45is a member of the armed forces of the Crown who becomes
entitled under the arrangement to a benefit on which no
liability to income tax arises by virtue of section 641(1) of
ITEPA 2003.”

7 (1) Section 230 (cash balance arrangements) is amended as follows.

(2) In subsection (4), for “beginning of the pension input period” substitute “end
of the immediately preceding pension input period (or is nil if the pension
input period is the first pension input period of the arrangement)”.

(3) 5After subsection (5) insert—

“(5A) If, during the pension input period, minimum payments are made
under—

(a) section 8 of the Pension Schemes Act 1993, or

(b) section 4 of the Pension Schemes (Northern Ireland) Act 1993,

10in relation to the individual in connection with the arrangement,
their amount is to be subtracted from what would otherwise be the
pension input amount in the case of the individual in respect of the
arrangement.

(5B) The pension input amount in respect of the arrangement is nil if—

(a) 15the individual is a deferred member of the pension scheme
under which it is an arrangement (or would be if it were the
only arrangement under the pension scheme relating to the
individual) throughout the pension input period or is (or
would be) such a deferred member for part of the pension
20input period and a pensioner member for the rest of it, and

(b) the value of the relevant rights of the individual does not
increase during the pension input period by more than the
relevant percentage.

(5C) In this section—

• 25“guaranteed minimum pension” has the meaning given by—

  (a)

  section 8(2) of the Pension Schemes Act 1993, or

  (b)

  section 4(2) of the Pension Schemes (Northern
  Ireland) Act 1993;

• “predecessor arrangement”, in relation to an arrangement,
  30means another arrangement (under the same or another
  registered pension scheme) from which some or all of the
  sums or assets held for the purposes of the arrangement
  directly or indirectly derive;

• “predecessor registered pension scheme”, in relation to a
  35pension scheme, means another registered pension scheme
  from which some or all of the sums or assets held for the
  purposes of the arrangement under the pension scheme
  directly or indirectly derive;

• “the relevant percentage”—

  (a)

  40where throughout the pension input period the
  arrangement (or a predecessor arrangement) includes
  provision for the value of the relevant rights of the
  individual to increase at an annual rate specified in
  the rules of the pension scheme (or a predecessor
  45registered pension scheme) on 14 October 2010, that
  percentage, and

  (b)

  otherwise, the percentage by which the consumer
  prices index for a month falling within the pension
  input period and nominated by the scheme
  50administrator is higher than it was for the same

  Finance (No. 3) BillPage 286

  month in the previous period of 12 months (or nil per
  cent if it is not higher);

• “the relevant rights of the individual” means rights of the
  individual under the arrangement, other than any rights to a
  5guaranteed minimum pension;

• “specified”, in relation to an annual rate, means specified as a
  percentage figure or as a percentage produced by movement
  in an index (or a combination of the two) but does not include
  a percentage produced by the exercise of a discretion by any
  10person.”

8 In section 231 (cash balance arrangements: uprating of opening value), for
subsection (3) substitute—

“(3) The appropriate percentage is the percentage (if any) by which the
consumer prices index for the September before the start of the tax
15year is higher than it was for the previous September.”

9 (1) Section 232 (cash balance arrangements: adjustments of closing value) is
amended as follows.

(2) In subsection (2), for “the debit” substitute “the reduction”.

(3) In subsection (3), for “the credit” substitute “the increase”.

(4) 20In subsection (4)—

(a) for “Subsection (5) applies if” substitute “If”,

(b) for “virtue of a transfer of any sum or asset” substitute “reason of a
transfer relating to the individual of any sums or assets”,

(c) omit “other”, and

(d) 25insert at the end (not as part of paragraph (b)) “the amount of the
reduction is to be added.”

(5) Omit subsection (5).

(6) In subsection (6)—

(a) for “Subsection (7) applies if” substitute “If”,

(b) 30for “virtue of a transfer” substitute “reason of a transfer relating to
the individual”, and

(c) insert at the end “, the amount of the increase is to be subtracted.”

(7) Omit subsection (7).

(8) For subsection (8) substitute—

“(8) 35If, during the pension input period, the rights of the individual under
the arrangement have been reduced by any surrender made, or
similar action taken, pursuant to an option available to the
individual under the arrangement, the amount of the reduction is to
be added.

(8A) 40If, during the pension input period—

(a) benefit crystallisation event 1, 2 or 4 occurs in relation to the
individual and the arrangement,

(b) benefit crystallisation event 3 occurs in relation to the
individual and the arrangement otherwise than by reason of
45a provision contained in, or made under, any enactment,

(c) benefit crystallisation event 6 occurs or, but for paragraph
15A of Schedule 32, would occur in relation to the individual
and the arrangement by virtue of the individual becoming
entitled to a pension commencement lump sum or a lifetime
5allowance excess lump sum, or

(d) there is an allocation of rights of the individual under the
arrangement (not falling within paragraph (a)),

the relevant amount is to be added.

(8B) In subsection (8A) “the relevant amount” is—

(a) 10in the case of benefit crystallisation event 2, what the annual
rate of the pension would be on the valuation assumptions,

(b) in the case of benefit crystallisation event 3, the increase in the
annual rate of the pension,

(c) in the case of benefit crystallisation event 6, the amount of the
15lump sum, and

(d) in any other case, the amount of the reduction in the amount
of the rights available for the provision of benefits to or in
respect of the individual occurring by reason of the benefit
crystallisation event or allocation.

(8C) 20If, during the pension input period, an adjustment to the individual’s
rights under the arrangement is made in consequence of the scheme
administrator satisfying a liability under section 237B in respect of
the individual, if and to the extent that the adjustment is reflected in
the closing amount the amount of the adjustment is to be added to
25the closing amount.

(8D) But no amount is to be added under subsection (8C) by reason of an
adjustment made in consequence of the scheme administrator
satisfying a liability under section 237B in a case where subsection (6)
of that section applied.”

(9) 30Omit subsection (9).

10 (1) Section 234 (defined benefits arrangements) is amended as follows.

(2) In subsection (4)—

(a) for “10” substitute “16”,

(b) in the definition of PB, for “beginning of the pension input period”
35substitute “end of the immediately preceding pension input period
(or is nil if the pension input period is the first pension input period
of the arrangement)”, and

(c) in the definition of LSB, for “that time” substitute “the end of the
immediately preceding pension input period (or is nil if the pension
40input period is the first pension input period of the arrangement)”.

(3) In subsection (5), for “10” substitute “16”.

(4) After that subsection insert—

“(5A) If, during the pension input period, minimum payments are made
under—

(a) 45section 8 of the Pension Schemes Act 1993, or

(b) section 4 of the Pension Schemes (Northern Ireland) Act 1993,

in relation to the individual in connection with the arrangement,
their amount is to be subtracted from what would otherwise be the
pension input amount in the case of the individual in respect of the
arrangement.

(5B) 5The pension input amount in respect of the arrangement is nil if—

(a) the individual is a deferred member of the pension scheme
under which it is an arrangement (or would be if it were the
only arrangement under the pension scheme relating to the
individual) throughout the pension input period or is (or
10would be) such a deferred member for part of the pension
input period and a pensioner member for the rest of it, and

(b) the value of the relevant rights of the individual does not
increase during the pension input period by more than the
relevant percentage.

(5C) 15In this section—

• “guaranteed minimum pension” has the meaning given by—

  (a)

  section 8(2) of the Pension Schemes Act 1993, or

  (b)

  section 4(2) of the Pension Schemes (Northern
  Ireland) Act 1993;

• 20“predecessor arrangement”, in relation to an arrangement,
  means another arrangement (under the same or another
  registered pension scheme) from which some or all of the
  sums or assets held for the purposes of the arrangement
  directly or indirectly derive;

• 25“predecessor registered pension scheme”, in relation to a
  pension scheme, means another registered pension scheme
  from which some or all of the sums or assets held for the
  purposes of the arrangement under the pension scheme
  directly or indirectly derive;

• 30“the relevant percentage”—

  (a)

  where throughout the pension input period the
  arrangement (or a predecessor arrangement) includes
  provision for the value of the relevant rights of the
  individual to increase at an annual rate specified in
  35the rules of the pension scheme (or a predecessor
  registered pension scheme) on 14 October 2010, that
  percentage, and

  (b)

  otherwise, the percentage by which the consumer
  prices index for a month falling within the pension
  40input period and nominated by the scheme
  administrator is higher than it was for the same
  month in the previous period of 12 months (or nil per
  cent if it is not higher);

• “the relevant rights of the individual” means rights of the
  45individual under the arrangement, other than any rights to a
  guaranteed minimum pension;

• “specified”, in relation to an annual rate, means specified as a
  percentage figure or as a percentage produced by movement
  in an index (or a combination of the two) but does not include
  50a percentage produced by the exercise of a discretion by any
  person.”

(5) In subsection (6), for “and section 236 (adjustments of closing value)”
substitute “, section 236 (adjustments of closing value) and section 236A
(post-entitlement enhancements)”.

11 (1) Section 235 (defined benefits arrangements: uprating of opening value) is
5amended as follows.

(2) In subsection (1), omit “in a case where rights do not accrue to the individual
under the arrangement during the pension input period”.

(3) For subsection (3) substitute—

“(3) The appropriate percentage is the percentage (if any) by which the
10consumer prices index for the September before the start of the tax
year is higher than it was for the previous September.”

12 (1) Section 236 (defined benefits arrangements: adjustments of closing value) is
amended as follows.

(2) In subsection (1), for “the closing value of the individual’s rights as
15calculated” substitute “PE and LSE”.

(3) In subsection (2)—

(a) for “rights of the individual under the arrangement have” substitute
“annual rate of the pension, or the amount of the lump sum, to which
the individual would be entitled under the arrangement has”,

(b) 20for “the debit” substitute “the reduction”, and

(c) insert at the end “to PE or LSE”.

(4) In subsection (3)—

(a) for “rights of the individual under the arrangement have” substitute
“annual rate of the pension, or the amount of the lump sum, to which
25the individual would be entitled under the arrangement has”,

(b) for “the credit” substitute “the increase”, and

(c) insert at the end “from PE or LSE”.

(5) For subsections (4) to (7) substitute—

“(4) If, during the pension input period, the annual rate of the pension, or
30the amount of the lump sum, to which the individual would be
entitled under the arrangement has been reduced by reason of a
transfer relating to the individual of any sums or assets held for the
purposes of, or representing accrued rights under, the arrangement
so as to become held for the purposes of, or to represent rights under,
35any pension scheme that is—

(a) a registered pension scheme, or

(b) a qualifying recognised overseas pension scheme,

the amount of the reduction is to be added to PE or LSE.

(5) If, during the pension input period, the annual rate of the pension, or
40the amount of the lump sum, to which the individual would be
entitled under the arrangement has been increased by reason of a
transfer relating to the individual of any sums or assets held for the
purposes of, or representing accrued rights under, any pension
scheme so as to become held for the purposes of, or to represent
45rights under, the arrangement, the amount of the increase is to be
subtracted from PE or LSE.”