Taxation of Pensions Bill (HC Bill 122)

benefit”)—

(a) in sub-paragraph (b) after “benefit” insert “, other than one—

(i) paid by a registered pension scheme in respect of a
member of the scheme who had not reached the
5age of 75 at the date of the member’s death, but

(ii) not paid before the end of the relevant two-year
period”, and

(b) after sub-paragraph (b) insert—

“In sub-paragraph (b)(ii) “the relevant two-year period”, in
10relation to a member of a registered pension scheme,
means the period of two years beginning with the earlier of
the day on which the scheme administrator of the scheme
first knew of the member’s death and the day on which the
scheme administrator could first reasonably have been
15expected to have known of it.”

(3) In section 636A of ITEPA 2003 (exemption for certain lump sums under
registered pension schemes)—

(a) in subsection (1) (lump sums on which there is no liability to income
tax)—

(i) 20after paragraph (ca) insert “or”, and

(ii) omit paragraph (e) and the “or” preceding it (uncrystallised
funds lump sum death benefit paid in respect of member
who dies under 75), and

(b) in subsection (4)(aa) (on uncrystallised funds lump sum death
25benefit paid in respect of member who dies having reached 75 there
is no liability to income tax other than liability under section 206 of
FA 2004) omit “paid in respect of a member who had reached the age
of 75 at the date of the member’s death”.

(4) In consequence of sub-paragraphs (1) and (3) omit—

(a) 30paragraphs 35(2)(c) and (3) and 42(2)(c) of Schedule 16 to FA 2011,
and

(b) paragraph 28(2)(a) of Schedule 19 to FA 2007.

Commencement

20 The amendments made by paragraphs 17 and 19 apply to lump sums paid
35on or after 6 April 2015, and the amendment made by paragraph 18 comes
into force on that day.

Part 3 Uncrystallised rights at member’s death

21 In section 216(1) of FA 2004 (benefit crystallisation events and amounts
40crystallised), in the table, after the entry relating to benefit crystallisation

event 5B insert—

22 (1) 15Section 217 of FA 2004 (persons liable to lifetime allowance charge) is
amended as follows.

(2) After subsection (1) insert—

“(1A) Subsection (1) is subject to subsections (2) and (2A).”

(3) In subsection (2) for “But where” substitute “Where”.

(4) 20After subsection (2) insert—

“(2A) Where the liability arises by reason of a designation mentioned in the
description of benefit crystallisation event 5C, it is a liability of the
dependant or nominee (as the case may be).”

(5) For subsections (3) and (4) (multiple relevant lump sum death benefits)
25substitute—

“(3) Subsection (4) applies if—

(a) two or more relevant post-death benefit crystallisation events
occur in respect of an individual, and

(b) tax is not chargeable on the whole of the total of the amounts
30crystallised by them.

(4) The person liable under subsection (2) or (2A) to the lifetime
allowance charge charged by reason of the occurrence of any one of
the relevant post-death benefit crystallisation events is liable to such
portion of the total amount of the tax payable by reason of the
35relevant post-death benefit crystallisation events having occurred as
appears to an officer of Revenue and Customs to be just and
reasonable.

(4A) For the purposes of subsections (3) and (4), a benefit crystallisation
event is a “relevant post-death benefit crystallisation event” if it is
40benefit crystallisation event 5C or 7.”

(6) The amendment made by sub-paragraph (5) comes into force on 6 April
2015.

23 (1) Section 219 of FA 2004 (availability of individual’s lifetime allowance) is
amended as follows.

(2) In subsection (7) (cases where there is more than one benefit crystallisation
event 7)—

(a) after “more than one” insert “relevant post-death”,

(b) omit “by reason of the payment of lump sum death benefits”, and

(c) 5for “individual the” substitute “individual, the relevant post-death”.

(3) After subsection (7) insert—

“(7A) For the purposes of subsection (7), a benefit crystallisation event is a
“relevant post-death benefit crystallisation event” if it is benefit
crystallisation event 5C or 7.”

(4) 10The amendments made by this paragraph come into force on 6 April 2015.

24 (1) Schedule 32 to FA 2004 (supplementary provisions about benefit
crystallisation events) is amended as follows.

(2) In paragraph 1 (meaning of “the relevant pension schemes”: in certain cases
means schemes of which the individual was a member immediately before
15death) before “7” insert “5C or”.

(3) After paragraph 14A insert—

“Benefit crystallisation event 5C: meaning of “relevant two-year period”

14B For the purposes of benefit crystallisation event 5C “the relevant
two-year period”, in relation to relevant unused uncrystallised
20funds held for the purposes of a money purchase arrangement
relating to the individual under any of the relevant pension
schemes, means the period of two years beginning with the earlier
of the day on which the scheme administrator of the scheme first
knew of the individual’s death and the day on which the scheme
25administrator could first reasonably have been expected to have
known of it.

Benefit crystallisation event 5C: meaning of “relevant unused uncrystallised funds”

14C (1) For the purposes of benefit crystallisation event 5C, sums or assets
held after the death of the individual for the purposes of a money
30purchase arrangement relating to the individual under any of the
relevant pension schemes are relevant unused uncrystallised
funds if—

(a) they are unused uncrystallised funds, and

(b) the individual had not reached the age of 75 at the date of
35the individual’s death.

(2) Paragraph 27E(4) and (5) of Schedule 28 (meaning of “unused
uncrystallised funds”) apply for the purposes of sub-paragraph
(1)(a), but as if references to the member were references to the
individual.”

40Part 4 Income tax on beneficiaries’ income withdrawal

25 (1) ITEPA 2003 is amended as follows.

(2) In section 573 (foreign pensions to which section 573 applies) after
subsection (2) insert—

“(2A) This section does not apply to pension within section 574(1)(ba) if—

(a) the pension is paid in respect of a deceased member of a
5pension scheme who had not reached the age of 75 at the date
of death, and

(b) no pension payments to the person entitled to the pension
were made before 6 April 2015 in respect of the deceased
member out of any of the following—

(i) 10the fund from which the pension is paid, and

(ii) any fund represented (to any extent) by that fund.

(2B) This section does not apply to pension within section 574(1)(bb) if the
pension is paid in respect of a deceased individual who had not
reached the age of 75 at the date of death.

(2C) 15Subsection (2A) is subject to subsection (2D).

(2D) This section does apply to pension within section 574(1)(ba) paid in
respect of a deceased member of a pension scheme who had not
reached the age of 75 at the date of death if the pension is paid in
respect of sums or assets held for the purposes of the pension scheme
20under which the pension is paid (“the paying scheme”) that would,
if the paying scheme were a registered pension scheme, be sums or
assets—

(a) representing unused uncrystallised funds (within the
meaning of paragraph 27E(4) and (5) of Schedule 28 to FA
252004) in the deceased member’s case, and

(b) designated on or after 6 April 2015 as available for the
payment of dependants’ drawdown pension or nominees’
drawdown pension, but

(c) not so designated before the end of the period of two years
30beginning with the earlier of the day on which the scheme
manager of the paying scheme first knew of the member’s
death and the day on which the scheme manager could first
reasonably have been expected to have known of it.”

(3) In section 574(1) (foreign pensions: meaning of “pension”)—

(a) 35in paragraph (b) (“pension” includes amounts corresponding to
income withdrawal or dependants’ income withdrawal)—

(i) omit “or dependants’ income withdrawal”, and

(ii) for “paragraphs 7 and 21” substitute “paragraph 7”, and

(b) before the “and” at the end of paragraph (b) insert—

“(ba) 40an amount paid under a relevant non-UK scheme or
an overseas pension scheme which, if the scheme
were a registered pension scheme, would be
dependants’ income withdrawal or nominees’
income withdrawal (within the meaning of
45paragraphs 21 and 27D of Schedule 28 to FA 2004),

(bb) an amount paid under a relevant non-UK scheme or
an overseas pension scheme which, if the scheme
were a registered pension scheme, would be
successors’ income withdrawal (within the meaning
50of paragraph 27J of Schedule 28 to FA 2004),”.

(4) In section 579A(1) (section applies to pensions under registered pension
schemes, subject to subsection (2)) after “subsection (2)” insert “and section
579CZA”.

(5) After section 579C insert—

“579CZA 5 Exemption for beneficiaries’ income withdrawal in some cases

(1) Section 579A does not apply to dependants’ income withdrawal or
nominees’ income withdrawal if it is paid—

(a) in respect of a deceased member of a registered pension
scheme who had not reached the age of 75 at the date of the
10member’s death, and

(b) to a person from the person’s—

(i) dependant’s drawdown pension fund,

(ii) dependant’s flexi-access drawdown fund, or

(iii) nominee’s flexi-access drawdown fund,

15in respect of a money purchase arrangement under a
registered pension scheme.

(2) Section 579A does not apply to successors’ income withdrawal if it is
paid—

(a) in respect of a deceased beneficiary of a deceased member of
20a registered pension scheme where the beneficiary had not
reached the age of 75 at the date of the beneficiary’s death,
and

(b) to a person from the person’s successor’s flexi-access
drawdown fund in respect of a money purchase arrangement
25under a registered pension scheme,

and here “beneficiary” means dependant, nominee or successor.

(3) Subsection (1) is subject to the following provisions of this section.

(4) Section 579A does apply to dependants’ income withdrawal paid on
or after 6 April 2015 to a person from the person’s dependant’s
30drawdown pension fund in respect of a money purchase
arrangement under a registered pension scheme (“the drawdown
fund”) if before 6 April 2015—

(a) any payment of dependants’ income withdrawal was made
from—

(i) 35the drawdown fund, or

(ii) any fund represented (to any extent) by the
drawdown fund, or

(b) any payment was made of a dependants’ short-term annuity
purchased using sums or assets out of—

(i) 40the drawdown fund, or

(ii) any fund represented (to any extent) by the
drawdown fund.

(5) Section 579A does apply to dependants’ income withdrawal paid in
respect of a deceased member of a registered pension scheme to a
45person from the person’s dependant’s flexi-access drawdown fund
in respect of a money purchase arrangement under a registered
pension scheme (“the new fund”) if—

(a) any of the sums or assets that make up the new fund—

(i) became newly-designated dependant funds under
paragraph 22A(2)(b) of Schedule 28 to FA 2004 or as a
result of the operation of any of paragraphs 22B to
22D of that Schedule, or

(ii) 5arise, or (directly or indirectly) derive, from any such
newly-designated dependant funds or from sums or
assets which so arise or derive,

(b) before 6 April 2015 any payment of dependants’ income
withdrawal in respect of the deceased member was made to
10the person from the person’s dependant’s drawdown
pension fund in respect of a money purchase arrangement
under a registered pension scheme, and

(c) any of the sums or assets that made up that fund at the time
of that payment to any extent make up, or are represented by
15sums or assets that to any extent make up, the new fund.

(6) Where relevant unused uncrystallised funds—

(a) are designated on or after 6 April 2015 as available for the
payment of dependants’ drawdown pension or nominees’
drawdown pension, and

(b) 20as a result of the designation make up (to any extent) a
person’s dependant’s flexi-access drawdown fund or
nominee’s flexi-access drawdown fund in respect of a money
purchase arrangement under a registered pension scheme,
but

(c) 25are not so designated before the end of the relevant two-year
period,

section 579A does apply to dependants’ income withdrawal or
nominees’ income withdrawal paid to the person from the fund so
far as it is paid in respect of sums or assets for the time being
30representing the whole or any part of those relevant unused
uncrystallised funds.

(7) In this section—

• “dependant”, “nominee” and “successor” have the meaning
  given (respectively) by paragraphs 15, 27A and 27F of
  35Schedule 28 to FA 2004,

• “dependant’s drawdown pension fund”, “dependant’s flexi-
  access drawdown fund”, “nominee’s flexi-access drawdown
  fund” and “successor’s flexi-access drawdown fund” have
  the meaning given (respectively) by paragraphs 22, 22A, 27E
  40and 27K of Schedule 28 to FA 2004,

• “money purchase arrangement” has the meaning given by
  section 152 of FA 2004, and

• “the relevant two-year period”, in relation to relevant unused
  uncrystallised funds held for the purposes of a money
  45purchase arrangement relating to a deceased individual
  under a registered pension scheme, means the period of two
  years beginning with the earlier of the day on which the
  scheme administrator of the scheme first knew of the
  individual’s death and the day on which the scheme
  50administrator could first reasonably have been expected to
  have known of it.

(8) For the purposes of this section, sums or assets held after the death
of a member of a registered pension scheme for the purposes of a
money purchase arrangement relating to the member under the
scheme are “relevant unused uncrystallised funds” if—

(a) 5they are unused uncrystallised funds, and

(b) the member had not reached the age of 75 at the date of the
member’s death.

(9) Paragraph 27E(4) and (5) of Schedule 28 of FA 2004 (meaning of
“unused uncrystallised funds”) apply for the purposes of subsection
10(8)(a).”

(6) In section 579D (interpretation of sections 579A to 579D)—

(a) at the appropriate places insert—

• ““nominees’ income withdrawal” has the meaning
  given by paragraph 27D of that Schedule;”, and

• 15““successors’ income withdrawal” has the meaning
  given by paragraph 27J of Schedule 28 to FA 2004.”,
  and”

(b) in paragraph (b) of the definition of “pension under a registered
pension scheme” after “dependants’ income withdrawal” insert “, or
20nominees’ income withdrawal or successors’ income withdrawal,”.

(7) The amendments made by sub-paragraphs (2) to (5) have effect in relation to
pension paid on or after 6 April 2015.