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Finance (No. 2) Bill


Finance (No. 2) Bill
Schedule 21 — Transitional provision relating to reduction in standard lifetime allowance etc
Part 1 — “Fixed protection 2014”

321

 

assumptions, be available for the provision of benefits to or in respect

of the member (and, if there is, the amount of the increase), and

(b)   

in the case of a defined benefits arrangement (or a hybrid

arrangement under which defined benefits may be provided to or in

respect of the individual under the arrangement), by reference to

5

whether there is an increase in the benefits amount.

      (6)  

For the purposes of sub-paragraph (5)(b) “the benefits amount” is—equation: plus[id[cross[char[P],times[char[R],char[V],char[F]]]],times[char[L],char[S]]]

           

where—

LS is the lump sum to which the individual would, on the valuation

assumptions, be entitled under the arrangement (otherwise than by

10

commutation of pension);

P is the annual rate of the pension which would, on the valuation

assumptions, be payable to the individual under the arrangement;

RVF is the relevant valuation factor.

      (7)  

Paragraph 17A of Schedule 36 to FA 2004 (impermissible transfers) applies

15

for the purposes of sub-paragraph (3)(b) but as if the references to a relevant

existing arrangement were to the arrangement and the reference in sub-

paragraph (2) to 5 April 2006 were to 5 April 2014.

      (8)  

Sub-paragraphs (7) to (8B) of paragraph 12 of Schedule 36 to FA 2004 (when

there is a permitted transfer) apply for the purposes of sub-paragraph (3)(c);

20

and where there is a permitted transfer—

(a)   

if it is a permitted transfer by virtue of sub-paragraph (8)(a) of

paragraph 12, this paragraph applies in relation to the arrangement

to which the transfer is made,

(b)   

if it is a permitted transfer by virtue of sub-paragraph (8)(b) of that

25

paragraph, this paragraph applies in relation to the arrangement to

which the transfer is made as if it were the same as that from which

it is made, and

(c)   

if it is a permitted transfer by virtue of sub-paragraph (8)(c) of that

paragraph, this paragraph applies in relation to the arrangement to

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which the transfer is made as if it were the same as that from which

it is made and (if the employment is transferred) as if the

employment with the transferee were the employment with the

transferor.

      (9)  

Sub-paragraphs (2A) to (2C) of paragraph 12 of Schedule 36 to FA 2004

35

(“permitted circumstances”) apply for the purposes of sub-paragraph (3)(d).

     (10)  

Paragraph 14 of Schedule 36 to FA 2004 (when a relevant contribution is paid

under an arrangement) applies for the purposes of sub-paragraph (4)(a) and

(c)(i).

     (11)  

Increases in the value of the individual’s rights under an arrangement are to

40

be ignored for the purposes of sub-paragraph (4)(b) or (c)(ii) if in no tax year

do they exceed the relevant percentage.

     (12)  

The relevant percentage, in relation to a tax year, means—

(a)   

where the arrangement (or a predecessor arrangement) includes

provision for the value of the rights of the individual to increase

45

during the tax year at an annual rate specified in the rules of the

pension scheme (or a predecessor registered pension scheme) on 11

December 2012—

 
 

Finance (No. 2) Bill
Schedule 21 — Transitional provision relating to reduction in standard lifetime allowance etc
Part 1 — “Fixed protection 2014”

322

 

(i)   

that percentage (or, where more than one arrangement

includes such provision, the higher or highest of the

percentages specified), plus

(ii)   

the relevant statutory increase percentage;

(b)   

otherwise—

5

(i)   

the percentage by which the consumer prices index for the

month of September in the previous tax year is higher than it

was for the September before that (or nil per cent if it is not

higher), or

(ii)   

if higher, the relevant statutory increase percentage.

10

     (13)  

In sub-paragraph (12)(a)—

“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;

15

“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.

     (14)  

In sub-paragraph (12) “the relevant statutory increase percentage”, in

20

relation to a tax year, means the percentage increase in the value of the

individual’s rights under the arrangement during the tax year so far as it is

attributable solely to one or more of the following—

(a)   

an increase in accordance with section 15 of the Pension Schemes Act

1993 or section 11 of the Pension Schemes (Northern Ireland) Act

25

1993 (increase of guaranteed minimum where commencement of

guaranteed minimum pension postponed);

(b)   

a revaluation in accordance with section 16 of the Pension Schemes

Act 1993 or section 12 of the Pension Schemes (Northern Ireland) Act

1993 (early leavers: revaluation of earnings factors);

30

(c)   

a revaluation in accordance with Chapter 2 of Part 4 of the Pension

Schemes Act 1993 or the Pension Schemes (Northern Ireland) Act

1993 (early leavers: revaluation of accrued benefits);

(d)   

a revaluation in accordance with Chapter 3 of Part 4 of the Pension

Schemes Act 1993 or the Pension Schemes (Northern Ireland) Act

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1993 (early leavers: protection of increases in guaranteed minimum

pensions);

(e)   

the application of section 67 of the Equality Act 2010 (sex equality

rule for occupational pension schemes).

     (15)  

Sub-paragraph (16) applies in relation to a tax year if—

40

(a)   

the arrangement is a defined benefits arrangement which is under an

annuity contract treated as a registered pension scheme under

section 153(8) of FA 2004,

(b)   

the contract provides for the value of the rights of the individual to

be increased during the tax year at an annual rate specified in the

45

contract, and

(c)   

the contract limits the annual rate to the percentage increase in the

retail prices index over a 12 month period specified in the contract.

     (16)  

Sub-paragraph (12)(b)(i) applies as if it referred instead to the annual rate of

the increase in the value of the rights during the tax year.

50

 
 

Finance (No. 2) Bill
Schedule 21 — Transitional provision relating to reduction in standard lifetime allowance etc
Part 1 — “Fixed protection 2014”

323

 

     (17)  

For the purposes of sub-paragraph (15)(c) the 12 month period must end

during the 12 month period preceding the month in which the increase in the

value of the rights occurs.

     (18)  

Subject to sub-paragraphs (19) to (21), sub-paragraph (3) applies in relation

to an individual who is a relieved member of a relieved non-UK pension

5

scheme as if the relieved non-UK pension scheme were a registered pension

scheme; and the other sub-paragraphs of this paragraph apply accordingly.

     (19)  

Sub-paragraphs (20) and (21) apply for the purposes of sub-paragraph (3)(a)

(instead of sub-paragraph (4)) in determining if there is benefit accrual in

relation to an individual under an arrangement under a relieved non-UK

10

pension scheme of which the individual is a relieved member.

     (20)  

There is benefit accrual in relation to the individual under the arrangement

if there is a pension input amount under sections 230 to 237 of FA 2004 (as

applied by Schedule 34 to that Act) greater than nil in respect of the

arrangement for a tax year; and, in such a case, the benefit accrual is treated

15

as occurring at the end of the tax year.

     (21)  

There is also benefit accrual in relation to the individual under the

arrangement if—

(a)   

in a tax year there occurs a benefit crystallisation event in relation to

the individual (whether in relation to the arrangement or to any

20

other arrangement under any pension scheme or otherwise), and

(b)   

had the tax year ended immediately before the benefit crystallisation

event, there would have been a pension input amount under sections

230 to 237 of FA 2004 greater than nil in respect of the arrangement

for the tax year,

25

           

and, in such a case, the benefit accrual is treated as occurring immediately

before the benefit crystallisation event.

     (22)  

Expressions used in this paragraph and Part 4 of FA 2004 (pension schemes)

have the same meaning in this paragraph as in that Part.

     (23)  

In particular, references to a relieved non-UK pension scheme or a relieved

30

member of such a scheme are to be read in accordance with paragraphs 13(3)

and (4) and 18 of Schedule 34 to FA 2004 (application of lifetime allowance

charge provisions to members of overseas pension schemes).

2     (1)  

The Commissioners for Her Majesty’s Revenue and Customs may by

regulations amend paragraph 1.

35

      (2)  

Regulations under this paragraph may (for example) add to the cases in

which paragraph 1 is to apply or is to cease to apply.

      (3)  

Regulations under this paragraph may include provision having effect in

relation to a time before the regulations are made; but—

(a)   

the time must be no earlier than 6 April 2014, and

40

(b)   

the provision must not increase any person’s liability to tax.

3     (1)  

The Commissioners for Her Majesty’s Revenue and Customs may by

regulations make provision specifying how any notice required to be given

to an officer of Revenue and Customs under paragraph 1 is to be given.

      (2)  

In sub-paragraph (1) the reference to paragraph 1 is to that paragraph as

45

amended from time to time by regulations under paragraph 2.

 
 

Finance (No. 2) Bill
Schedule 21 — Transitional provision relating to reduction in standard lifetime allowance etc
Part 2 — Other provision

324

 

4     (1)  

Regulations under paragraph 2 or 3 may include supplementary or

incidental provision.

      (2)  

The powers to make regulations under paragraphs 2 and 3 are exercisable by

statutory instrument.

      (3)  

A statutory instrument containing regulations under paragraph 2 or 3 is

5

subject to annulment in pursuance of a resolution of the House of Commons.

Part 2

Other provision

5          

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

6     (1)  

Section 218 (standard lifetime allowance etc) is amended as follows.

10

      (2)  

After subsection (5B) insert—

“(5BA)   

Where the operation of a lifetime allowance enhancement factor is

provided for by any of sections 220, 222, 223 and 224 and the time

mentioned in the definition of SLA in the section concerned fell

within the period consisting of the tax year 2012-13 and the tax year

15

2013-14, subsection (4) has effect as if the amount to be multiplied by

LAEF were £1,500,000 if that is greater than SLA.

(5BB)   

Where more than one lifetime allowance enhancement factor

operates, subsection (5BA) does not apply if subsection (5A) or (5B)

applies.”

20

      (3)  

After subsection (5C) insert—

“(5D)   

Where benefit crystallisation event 7 occurs on or after 6 April 2014

by reason of the payment of a relevant lump sum death benefit in

respect of the death of the individual during the period consisting of

the tax year 2012-13 and the tax year 2013-14, the standard lifetime

25

allowance at the time of the benefit crystallisation event is

£1,500,000.”

      (4)  

The amendments made by this paragraph have effect for the tax year 2014-

15 and subsequent tax years.

7     (1)  

In section 219 (availability of individual’s lifetime allowance) after

30

subsection (5) insert—

“(5A)   

If paragraph 7 of Schedule 36 (primary protection) makes provision

for a lifetime allowance enhancement factor in relation to the

individual, subsection (5) has effect as if CSLA were £1,500,000 if that

is greater than CSLA.”

35

      (2)  

The amendment made by this paragraph has effect for cases in which the

time of the current benefit crystallisation event falls on or after 6 April 2014.

8     (1)  

Part 1 of Schedule 29 (authorised lump sums: lump sum rule) is amended as

follows.

      (2)  

In paragraph 2 (which applies for the purpose of determining pension

40

 
 

Finance (No. 2) Bill
Schedule 22 — Employee shareholder shares
Part 1 — Income tax treatment of employee shareholder shares

325

 

commencement lump sums) after sub-paragraph (8) insert—

    “(9)  

Sub-paragraph (10) applies if the member is a protected individual

(but not if this paragraph applies with the modifications set out in

paragraph 27 or 28 of Schedule 36).

     (10)  

Sub-paragraphs (6) and (7) have effect as if CSLA were £1,500,000

5

if that is greater than CSLA.

     (11)  

The member is a “protected individual” if—

(a)   

paragraph 7 of Schedule 36 (primary protection) makes

provision for a lifetime allowance enhancement factor in

relation to the member, or

10

(b)   

at the time the member becomes entitled to the lump sum,

paragraph 12 of that Schedule (enhanced protection)

applies in relation to the member.”

      (3)  

The amendment made by sub-paragraph (2) has effect for cases in which the

member becomes entitled to the lump sum on or after 6 April 2014.

15

      (4)  

In paragraph 8 (which applies for the purpose of determining trivial

commutation lump sums) for sub-paragraphs (2) and (3) substitute—

    “(2)  

The adjustment referred to in sub-paragraph (1)(a) is the

multiplication of the value of the member’s relevant crystallised

pension rights on 5 April 2006 by—equation: over[times[char[C],char[L]],comma[num[15.0000000000000000,"15"],num[0.0000000000000000,

"000"]]]

20

           

where CL is the commutation limit on the nominated date.

      (3)  

The adjustment referred to in sub-paragraph (1)(b) is the

multiplication of the amount crystallised by a previous benefit

crystallisation event by—equation: over[times[char[C],char[L]],times[char[B],char[C],char[L]]]

           

where—

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CL is the commutation limit on the nominated date, and

BCL is the commutation limit when the previous benefit

crystallisation event occurred.”

      (5)  

The amendment made by sub-paragraph (4) has effect for cases in which the

nominated date falls on or after 6 April 2014.

30

Schedule 22

Section 54

 

Employee shareholder shares

Part 1

Income tax treatment of employee shareholder shares

1          

ITEPA 2003 is amended in accordance with paragraphs 2 to 15.

35

2          

In section 19(2) (time of receipt of non-money earnings), at the appropriate

 
 

Finance (No. 2) Bill
Schedule 22 — Employee shareholder shares
Part 1 — Income tax treatment of employee shareholder shares

326

 

place insert—

   

“section 226A (amount treated as earnings: employee

shareholder shares).”

3          

In Chapter 12 of Part 3, after section 226 insert—

“Shares of employee shareholders

5

226A    

Amount treated as earnings

(1)   

This section applies if shares having a market value of no less than

£2000 are acquired by an employee in consideration of an employee

shareholder agreement.

(2)   

An amount calculated in accordance with subsection (3) is to be

10

treated as earnings from the employment, in respect of the

acquisition of the shares, for the tax year in which they are acquired.

   

But this is subject to subsection (4).

(3)   

The amount is—equation: plus[times[char[M],char[V]],minus[char[P]]]

   

where—

15

(a)   

MV is an amount equal to the market value of the shares;

(b)   

P is any payment the employee is treated as making for the

shares under section 226B.

   

But if P exceeds MV, the amount is nil.

(4)   

If the shares are acquired pursuant to an employment-related

20

securities option, subsection (2) does not apply.

(5)   

If subsection (2) applies, nothing else constitutes earnings under this

Part from the employment in respect of the acquisition of the shares.

(6)   

For the purposes of this section and sections 226B to 226D—

shares are “acquired” by an employee if the employee becomes

25

beneficially entitled to them (and they are acquired at the

time when the employee becomes so entitled);

“employee shareholder agreement” means an agreement by

virtue of which an employee is an employee shareholder (see

section 205A(1)(a) to (c) of the Employment Rights Act 1996);

30

“employee shareholder share” means a share acquired by an

employee in consideration of an employee shareholder

agreement;

“employee” and “employer company”, in relation to an

employee shareholder agreement, mean the individual and

35

the company which enter into the agreement;

“employment-related securities option” has the same meaning

as in Chapter 5 of Part 7 (see section 471(5));

“market value” has the same meaning as it has for the purposes

of TCGA 1992 by virtue of Part 8 of that Act; and the market

40

value of shares is their market value on the day on which they

are acquired (but see also subsection (7)).

(7)   

For the purposes of subsection (1), the market value of the shares is

to be determined ignoring—

 
 

Finance (No. 2) Bill
Schedule 22 — Employee shareholder shares
Part 1 — Income tax treatment of employee shareholder shares

327

 

(a)   

any election under section 431 (election for market value of

restricted shares to be calculated as if not restricted), and

(b)   

section 437 (market value of convertible securities to be

determined as if not convertible).

226B    

Deemed payment for employee shareholder shares

5

(1)   

This section applies if shares having a market value of no less than

£2000 are acquired by an employee in consideration of an employee

shareholder agreement.

(2)   

Where all the shares acquired in consideration of the agreement are

acquired on the same day, the employee is to be treated, for the

10

purposes of this Act, as having made on that day a payment of £2000

for those shares.

(3)   

Where—

(a)   

shares are acquired by the employee in consideration of the

agreement on more than one day, and

15

(b)   

of those shares, shares having a market value of not less than

£2000 are acquired on the first of those days,

   

the employee is to be treated for the purposes of this Act as having

made, on the first of those days, a payment of £2000 for the shares

acquired on that day.

20

(4)   

If the market value of the shares acquired by the employee on the day

mentioned in subsection (2) or (3)(b) exceeds £2000, the amount of

the payment under subsection (2) or (3) which the employee is to be

treated as having made for each of the shares is an amount equal to

the appropriate proportion of the market value of that share.

25

(5)   

The “appropriate proportion” is the following—equation: over[num[2000.0000000000000000,"2000"],char[V]]

   

where V is the total market value of the shares acquired by the

employee on the day.

(6)   

This section is subject to—

(a)   

section 226C (only one payment deemed to be made under

30

agreements with associated companies), and

(b)   

section 226D (no deemed payment if shareholder or a

connected person has a material interest in the company).

(7)   

Except as provided by this section, for the purposes of this Act the

employee is to be treated as having given no consideration for shares

35

acquired in consideration of the agreement.

(8)   

Section 226A(7) applies for the purposes of this section as it applies

for the purposes of section 226A(1).

226C    

Only one payment deemed to be made under associated agreements

(1)   

An employee who is treated as having made a payment under

40

section 226B for shares acquired in consideration of an employee

shareholder agreement (“the relevant agreement”) is not to be

treated as having made a payment for any other qualifying shares.

 
 

 
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Revised 28 March 2013