Finance Bill

House of Commons

Session 2013 - 14
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Finance Bill

Finance Bill
Schedule 21 — Transitional provision relating to reduction in standard lifetime allowance etc
Part 2 — Other provision
326

arrangement for a tax year; and, in such a case, the benefit accrual is treated
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
5
the individual (whether in relation to the arrangement or to any
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
10
for the tax year,

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.
15
     (23)
In particular, references to a relieved non-UK pension scheme or a relieved
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
20
regulations amend paragraph 1.
      (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—
25
(a)
the time must be no earlier than 6 April 2014, and
(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.
30
      (2)
In sub-paragraph (1) the reference to paragraph 1 is to that paragraph as
amended from time to time by regulations under paragraph 2.
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
35
statutory instrument.
      (3)
A statutory instrument containing regulations under paragraph 2 or 3 is
subject to annulment in pursuance of a resolution of the House of Commons.
Part 2
Other provision
40
5
Part 4 of FA 2004 (pension schemes) is amended as follows.
6     (1)
Section 218 (standard lifetime allowance etc) is amended as follows.

Finance Bill
Schedule 21 — Transitional provision relating to reduction in standard lifetime allowance etc
Part 2 — Other provision
327

      (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
5
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.”
10
      (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
15
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
20
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.”
25
      (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
30
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
35
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
40
(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.
45

Finance Bill
Schedule 22 — Employee shareholder shares
Part 1 — Income tax treatment of employee shareholder shares
328

      (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—
5

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—

where—
10
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.
15
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.
20
2
In section 19(2) (time of receipt of non-money earnings), at the appropriate
place insert—

“section 226A (amount treated as earnings: employee
shareholder shares).”
3
In Chapter 12 of Part 3, after section 226 insert—
25
“Shares of employee shareholders
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.
30
(2)
An amount calculated in accordance with subsection (3) is to be
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).

Finance Bill
Schedule 22 — Employee shareholder shares
Part 1 — Income tax treatment of employee shareholder shares
329

(3)
The amount is—

where—
(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.
5

But if P exceeds MV, the amount is nil.
(4)
If the shares are acquired pursuant to an employment-related
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.
10
(6)
For the purposes of this section and sections 226B to 226D—
shares are “acquired” by an employee if the employee becomes
beneficially entitled to them (and they are acquired at the
time when the employee becomes so entitled);
“employee shareholder agreement” means an agreement by
15
virtue of which an employee is an employee shareholder (see
section 205A(1)(a) to (d) of the Employment Rights Act 1996);
“employee shareholder share” means a share acquired by an
employee in consideration of an employee shareholder
agreement;
20
“employee” and “employer company”, in relation to an
employee shareholder agreement, mean the individual and
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));
25
“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
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
30
to be determined ignoring—
(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).
35
226B
Deemed payment for employee shareholder shares
(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
40
acquired on the same day, the employee is to be treated, for the
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
45
agreement on more than one day, and

Finance Bill
Schedule 22 — Employee shareholder shares
Part 1 — Income tax treatment of employee shareholder shares
330

(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.
5
(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.
10
(5)
The “appropriate proportion” is the following—

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
15
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
20
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
25
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.
(2)
“Qualifying shares” means employee shareholder shares in—
(a)
the employer company in relation to the relevant agreement,
30
or
(b)
an associated company of that company,

which are acquired by the employee in consideration of an
agreement within subsection (3).
(3)
An agreement is within this subsection if it is—
35
(a)
another employee shareholder agreement with the same
employer company, or
(b)
an employee shareholder agreement with an associated
company of that company.
(4)
For the purposes of this section—
40
(a)
a company is an “associated company” of another if—
(i)
one of the two has control of the other, or
(ii)
both are under the control of the same person or
persons, and

Finance Bill
Schedule 22 — Employee shareholder shares
Part 1 — Income tax treatment of employee shareholder shares
331

(b)
if a company controls another when an employee
shareholder agreement is entered into with the employee,
paragraph (a) applies as if that continued to be the case (in
addition to any other circumstances) when any subsequent
employee shareholder agreement is entered into with that
5
employee.
(5)
But subsection (4)(b) does not apply as between two companies if—
(a)
one of the companies has been dissolved,
(b)
the period of two years beginning with the date of the
dissolution has passed, and
10
(c)
the employee has not, at any time in that period, been
engaged in any office or employment (including engagement
under a contract for services) with any company which is an
associated company of the dissolved company.
(6)
In this section “control” is to be read in accordance with sections 450
15
and 451 of CTA 2010.
226D
Shareholder or connected person having material interest in company
(1)
No payment is treated as made under section 226B in respect of any
shares if, on the date on which the shares are acquired—
(a)
the employee has a material interest in the employer
20
company or a relevant parent undertaking, or
(b)
the employee is connected with an individual who has a
material interest in the employer company or a relevant
parent undertaking.
(2)
No payment is treated as made under section 226B in respect of any
25
shares if—
(a)
at any time in the period of one year ending with the date on
which the shares are acquired, the employee had a material
interest in the employer company or a relevant parent
undertaking, or
30
(b)
on the date on which the shares are acquired, the employee is
connected with an individual who, at any time in the period
of one year ending with that date, had a material interest in
the employer company or a relevant parent undertaking.
(3)
Subsections (4) and (5) define “material interest” for the purposes of
35
this section.

Those subsections must be read together with subsections (6) to (8).
(4)
An individual (“A”) has a material interest in a company if at least
25% of the voting rights in the company are exercisable—
(a)
by A,
40
(b)
by persons connected with A, or
(c)
by A and persons connected with A together.
(5)
If a company is a close company, an individual (“A”) has a material
interest in it if—
(a)
A,
45
(b)
persons connected with A, or
(c)
A and persons connected with A together,

Finance Bill
Schedule 22 — Employee shareholder shares
Part 1 — Income tax treatment of employee shareholder shares
332


possess such rights as would, in the event of the winding up of the
company or in any other circumstances, give an entitlement to
receive at least 25% of the assets that would then be available for
distribution among the participators.
(6)
For the purposes of subsection (1), A is to be treated as having a
5
material interest in a company at any time if either of the following
conditions is met.
(7)
The first condition is that—
(a)
A,
(b)
persons connected with A, or
10
(c)
A and persons connected with A together,

have an entitlement to acquire such rights as would (together with
any existing rights) give A a material interest in the company.
(8)
The second condition is that there are arrangements in place
between—
15
(a)
the employer company or a relevant parent undertaking, and
(b)
A, or persons connected with A, or A and persons connected
with A together,

which enable A or those persons to acquire such rights as would
(together with any existing rights) give A a material interest in the
20
company.
(9)
In this section—
“arrangements” includes any agreement, understanding,
scheme, transaction or series of transactions (whether or not
legally enforceable);
25
“close company” includes a company that would be a close
company but for—
(a)
section 442(a) of CTA 2010 (exclusion of companies
not resident in the United Kingdom), or
(b)
sections 446 and 447 of CTA 2010 (exclusion of certain
30
quoted companies);
“relevant parent undertaking” means any parent undertaking
of the employer company and for this purpose “parent
undertaking” is to be read in accordance with section 1162 of
the Companies Act 2006.”
35
4
In consequence of the amendment made by paragraph 3—
(a)
in the heading to Chapter 12 of Part 3, for “Payments” substitute
“Other amounts”, and
(b)
before section 221 insert the heading “Payments”.
5
In section 428 (restricted securities: amount of charge on occurrence of
40
chargeable event), in subsection (7), after paragraph (b) insert—
“(ba)
any amount treated as earnings from the employee’s
employment under section 226A (employee shareholder
shares: amount treated as earnings) in respect of the
acquisition of the employment-related securities (other than
45
an amount of exempt income),”.
6
In section 431 (election for full or partial disapplication of Chapter 2