Finance (No. 2) Bill (HL Bill 156)

(d) section 312A (limited exemption for qualifying bonus
payments);

(e) section 317 (subsidised meals);

(f) section 320C (recommended medical treatment);

(g) 5section 323A (trivial benefits provided by employers).

(5) “Excluded exemption” means an exemption conferred by any of the
following provisions—

(a) section 239 (payments and benefits connected with taxable
cars and vans and exempt heavy goods vehicles);

(b) 10section 244 (cycles and cyclist’s safety equipment);

(c) section 266(2)(c) (non-cash voucher regarding entitlement to
exemption within section 244);

(d) section 270A (limited exemption for qualifying childcare
vouchers);

(e) 15section 308 (exemption of contribution to registered pension
scheme);

(f) section 308A (exemption of contributions to overseas pension
scheme);

(g) section 308C (provision of pensions advice);

(h) 20section 309 (limited exemptions for statutory redundancy
payments);

(i) section 310 (counselling and other outplacement services);

(j) section 311 (retraining courses);

(k) section 318 (childcare: exemption for employer-provided
25care);

(l) section 318A (childcare: limited exemption for other care).

(6) In this section “benefit or facility” includes anything which
constitutes employment income or in respect of which employment
income is treated as arising to the employee (regardless of its form
30and the manner of providing it).

(7) In this section “optional remuneration arrangements” has the same
meaning as in the benefits code (see section 69A).

(8) The Treasury may by order amend subsections (4) and (5) by adding
or removing an exemption conferred by Part 4.””

35Other amendments

50 (1) Section 19 of ITEPA 2003 (receipt of non-money earnings) is amended as
follows.

(2) In subsection (2), after “94” insert “or 94A”.

(3) In subsection (3), after “87” insert “or 87A”.

51 40In section 95 of ITEPA 2003 (disregard for money, goods or services
obtained), in subsection (1), in the words before paragraph (a), after “credit-
token” insert “or the relevant amount in respect of a cash voucher, a non-
cash voucher or a credit-token”.

52 (1) In section 236 of ITEPA 2003 (interpretation of Chapter 2 of Part 4:
45exemptions for mileage allowance relief etc), in subsection (2)(b)—

(a) in the words before sub-paragraph (i), for “the cash equivalent of”
substitute “an amount in respect of”;

(b) in sub-paragraph (i), after “120” insert “or 120A”;

(c) in sub-paragraph (ii), after “154” insert “or 154A”;

(d) 5in sub-paragraph (iii), after “203” insert “or 203A”.

(2) In section 236 of ITEPA 2003 (interpretation of Chapter 2 of Part 4), in
subsection (2)(c), for “the cash equivalent of” substitute “an amount in
respect of”.

53 (1) Section 239 of ITEPA 2003 (payments and benefits connected with taxable
10cars and vans etc) is amended as follows.

(2) In subsection (3)—

(a) after “149” insert “or 149A”;

(b) after “160” insert “or 160A”.

(3) In subsection (6), for “the cash equivalent of” substitute “an amount
15(whether the cash equivalent or the relevant amount) in respect of”.

54 In section 362 of ITEPA 2003 (deductions where non-cash voucher
provided), in subsection (1)(a), for “87(1) (cash equivalent” substitute “87(1)
or 87A(1) (amount in respect”.

55 In section 318A of ITEPA 2003 (childcare: limited exemption for other care),
20in subsection (1)(b), for “cash equivalent of the benefit” substitute “amount
treated as earnings in respect of the benefit by virtue of section 203(1) or
203A(1) (as the case may be)”.

56 In section 363 of ITEPA 2003 (deductions where credit-token provided), in
subsection (1)(a), for “94(1) (cash equivalent” substitute “94(1) or 94A(1)
25(amount in respect”.

57 In section 693 of ITEPA 2003 (cash vouchers), in subsection (1), for “section
81(2)” substitute “subsection (2) of, or (as the case may be) referred to in
subsection (1A)(b) of, section 81”.

58 In section 694 of ITEPA 2003 (non-cash vouchers), in subsection (1), after
30“87(2)” insert “or 87A(4)”.

59 In section 695 of ITEPA 2003 (benefit of credit-token treated as earnings),
after subsection (1) insert—

“(1A) If the credit-token is provided pursuant to optional remuneration
arrangements, the reference in subsection (1) to the amount
35ascertained under section 94(2) is to be read as a reference to what
that amount would be were the credit-token provided otherwise
than pursuant to optional remuneration arrangements.”

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

61 In Part 2 of Schedule 1 to ITEPA 2003 (index of defined expressions), in the
entry relating to “the taxable period”, for “102(2)” substitute “102(1)”.

5Commencement and transitional provision

62 (1) The amendments made by paragraphs 1, 52(1)(a) and (2) and 60 of this
Schedule have effect for the tax year 2017-18 and subsequent tax years.

(2) The amendments made by paragraphs 2 to 51, 52(1)(b) to (d), 53 to 59 and 61
of this Schedule have effect for the tax year 2017-18 and subsequent tax
10years.

(3) In relation to a benefit provided pursuant to pre-6 April 2017 arrangements,
the amendment made by paragraph 49 has effect for the tax year 2018-19 and
subsequent tax years.

(4) In relation to a benefit provided pursuant to pre-6 April 2017 arrangements,
15the amendments made by paragraphs 7 to 41, 52(1)(b) and (c), 53 and 61 (and
paragraph 2, so far as relating to those paragraphs) have effect for the tax
year 2021-22 and subsequent tax years.

(5) In relation to a benefit provided pursuant to pre-6 April 2017 arrangements,
the amendments made by paragraphs 3 to 6, 42 to 48, 50, 51, 52(1)(d) and 54
20to 59 (and paragraph 2, so far as relating to those paragraphs) have effect for
the tax year 2018-19 and subsequent tax years (but see sub-paragraph (10)).

(6) If any terms of a pre-6 April 2017 arrangement which relate to the provision
of a particular benefit are varied on or after 6 April 2017, that benefit is
treated, with effect from the beginning of the day on which the variation
25takes effect, as not being provided pursuant to pre-6 April 2017
arrangements for the purposes of this paragraph.

(7) If pre-6 April 2017 arrangements are renewed on or after 6 April 2017, this
paragraph has effect as if those arrangements were entered into at the
beginning of the day on which the renewal takes effect (and are distinct from
30the arrangements existing immediately before that day).

(8) In sub-paragraph (6) the reference to variation does not include any
variation which is required in connection with accidental damage to a
benefit provided under the arrangements, or otherwise for reasons beyond
the control of the parties to the arrangements.

(9) 35In sub-paragraph (6) the reference to variation does not include any
variation which occurs in connection with a person’s entitlement to
statutory sick pay, statutory maternity pay, statutory adoption pay,
statutory paternity pay or statutory shared parental pay.

(10) In relation to relevant school fee arrangements which were entered into
40before 6 April 2017—

(a) sub-paragraph (5) is to be read as if it did not include a reference to
paragraph 48;

(b) the amendment made by paragraph 48 has effect for the tax year
2021-22 and subsequent tax years.

(11) 5Relevant school fee arrangements to which an employee is a party (“the
continuing arrangements”) are to be regarded for the purposes of this
paragraph as the same arrangements as any relevant school fee
arrangements to which the employee was previously a party (“the previous
arrangements”) if the continuing arrangements and the previous
10arrangements relate—

(a) to employment with the same employer,

(b) to the same school, and

(c) to school fees in respect of the same child.

(12) Sub-paragraphs (6) and (7) do not have effect in relation to relevant school
15fee arrangements.

(13) If a non-cash voucher is provided under pre-6 April 2017 arrangements and
is used to obtain anything (whether money, goods or services) that is
provided on or after 6 April 2018 (“delayed benefits”), so much of the benefit
of the voucher as it is reasonable to regard as being applied to obtain the
20delayed benefits is to be treated for the purposes of this paragraph as not
having been provided pursuant to pre-6 April 2017 arrangements.

(14) For the purposes of this paragraph arrangements are “relevant school fee
arrangements” if the benefit mentioned in section 69A(1) of ITEPA 2003
consists in the payment or reimbursement (in whole or in part) of, or a
25waiver or reduction of, school fees.

(15) In this paragraph—

• “arrangements” means optional remuneration arrangements (as
  defined in section 69A of ITEPA 2003);

• “benefit” includes any benefit or facility, regardless of the manner of
  30providing it;

• “non-cash voucher” has the same meaning as in Chapter 4 of Part 3 of
  ITEPA 2003;

• “pre-6 April 2017 arrangements” means arrangements which are
  entered into before 6 April 2017.

Section 17

35SCHEDULE 3 Overseas pensions

Part 1 Registered pension schemes established outside the UK

1 (1) In Chapter 5A of Part 4 of FA 2004 (registered pension schemes established
40outside the UK), after section 242B (inserted by Schedule 4 to this Act)

insert—

“242C Application of this Part to non-UK registered schemes

(1) This Part (so far as would not otherwise be the case) is to be read—

(a) as applying in relation to UK-relieved funds of a non-UK
5registered scheme as it applies in relation to sums or assets
held for the purposes of, or representing accrued rights
under, a registered pension scheme established in the United
Kingdom,

(b) as applying in relation to a non-UK registered scheme, so far
10as the scheme relates to the scheme’s UK-relieved funds, as it
applies in relation to a registered pension scheme established
in the United Kingdom,

(c) as applying in relation to members of a non-UK registered
scheme, so far as their rights under the scheme are
15represented by UK-relieved funds of the scheme, as it applies
in relation to members of a registered pension scheme
established in the United Kingdom, and

(d) as applying to relevant contributions to a non-UK registered
scheme as it applies in relation to contributions to a
20registered pension scheme established in the United
Kingdom.

(2) Subsection (1) has effect subject to, and in accordance with, the
following provisions of this Chapter.

(3) The Commissioners for Her Majesty’s Revenue and Customs may by
25regulations make—

(a) provision elucidating the application of, or supplementing,
subsection (1) or other provisions of this Chapter, or

(b) where relief from tax is involved, other provision for or in
connection with the application of this Part where the
30interpretative presumption against extra-territorial
application means that it would otherwise not apply.

(4) Regulations under subsection (3) may (in particular)—

(a) amend provisions of or made under—

(i) this Part, or

(ii) 35any other enactment related to taxation in connection
with pensions, and

(b) make consequential amendments of provisions of, or made
under, any enactment.

(5) See section 242B for the meaning of “UK-relieved funds” and
40“relevant contribution”.

242D Non-UK registered schemes: annual allowance charge

(1) This section is about the application of the provisions of this Part
relating to the annual allowance charge.

(2) Pension input amounts in respect of arrangements relating to an
45individual under a non-UK registered scheme are to be taken into
account in applying the provisions for a tax year in relation to the
individual only if, in accordance with regulations made by the

Commissioners for Her Majesty’s Revenue and Customs, relieved
inputs are to be taken to have been made in respect of the individual
under the scheme in the year.

242E Investment-regulated non-UK registered schemes

5For the purposes of the application of the taxable property
provisions in relation to a non-UK registered scheme, property is
taxable property in relation to the scheme if it would be taxable
property in relation to the scheme were the scheme a registered
pension scheme established in the United Kingdom.””

(2) 10The amendment made by this paragraph has effect for the tax year 2017-18
and subsequent tax years.

Part 2 Income tax on pension income

UK residents to be taxed on 100%, not 90%, of foreign pension income

2 (1) 15Omit section 575(2) of ITEPA 2003 (foreign pensions received by UK
residents: taxable amount is 90% of actual amount).

(2) Omit section 613(3) of ITEPA 2003 (annuities from non-UK sources: taxable
amount is 90% of actual amount).

(3) Omit section 635(3) of ITEPA 2003 (foreign voluntary annual payments:
20taxable amount is 90% of actual amount).

(4) In consequence—

(a) in section 575 of ITEPA 2003—

(i) in subsection (1) omit “, (2)”;

(ii) in subsection (1A), for “subsections (2) and” substitute
25“subsection”;

(iii) in subsection (3), for “That pension income” substitute “The
full amount of the pension income arising in the tax year, or
(as the case may be) the UK part of the tax year,”;

(iv) in subsection (3), for “that Act” substitute “ITTOIA 2005”;

(b) 30in section 613 of ITEPA 2003—

(i) in subsection (2), for “subsections (3) and” substitute
“subsection”;

(ii) in subsection (4), for “that Act” substitute “ITTOIA 2005”;

(c) in section 635 of ITEPA 2003—

(i) 35in subsection (2), for “subsections (3) and” substitute
“subsection”;

(ii) in subsection (4), for “That pension income” substitute “The
full amount of the pension income arising in the tax year”;

(iii) in subsection (4), for “that Act” substitute “ITTOIA 2005”;

(d) 40in Schedule 45 to FA 2013 omit paragraph 72(4).

(5) In sections 613(5) and 635(5) (application of section 839 of ITTOIA 2005 in
certain cases), for “condition B” substitute “conditions B1 and B2 (and the
reference to them in subsection (1))”.

(6) The amendments made by this paragraph have effect for the tax year 2017-18
and subsequent tax years, subject to sub-paragraph (7).

(7) The amendments in section 575 of ITEPA 2003, so far as they relate to
relevant withdrawals, have effect in relation to relevant withdrawals paid in
5or after the year 2017-18; and here “relevant withdrawal” has the meaning
given by section 576A of ITEPA 2003.

Superannuation funds to which section 615(3) of ICTA applies

3 (1) Section 615 of ICTA (trust funds for pensions in respect of employment
outside UK) is amended as follows.

(2) 10In subsection (6)—

(a) in paragraph (b), omit the final “and”;

(b) in paragraph (c), at the end insert “and”;

(c) after paragraph (c) insert—

“(d) meets the benefit accrual condition (see subsection
15(6A)).””

(3) After subsection (6) insert—

“(6A) The benefit accrual condition is—

(a) in the case of a superannuation fund which is a money
purchase arrangement, that no contributions are made to the
20fund on or after 6 April 2017;

(b) in relation to a superannuation fund which is a defined
benefits arrangement, that on or after 6 April 2017 there is no
increase in the value of any person’s rights under the
arrangement.

(6B) 25For the purposes of subsection (6A)(b)—

(a) whether there is an increase in the value of a person’s rights
is to be determined by reference to whether there is an
increase in the benefits amount as defined by paragraph 14(7)
of Schedule 18 to the Finance Act 2011, but

(b) 30ignore increases in the value of a person’s rights if in no tax
year do they exceed the relevant percentage.

(6C) In subsection (6B)(b), “relevant percentage”, in relation to a tax year,
means—

(a) where, on 20 March 2017, the rules of the fund include
35provision for the value of the rights of a person to increase
during the tax year at an annual rate specified in those rules,
that rate, or

(b) in any other case, the percentage by which the consumer
prices index for September in the previous tax year is higher
40than it was for the September in the tax year before that (or, if
greater, 0%).

(6D) The Commissioners for Her Majesty’s Revenue and Customs may by
regulations make provision—

(a) so as to change, or modify the effect of, the benefit accrual
45condition;

(b) as to the matters to be taken into account in determining
whether the benefit accrual condition is met;

(c) for a superannuation fund to be treated to any extent as
meeting or not meeting the benefit accrual condition;

(d) 5for the treatment for tax purposes of a superannuation fund
to the extent that it does not meet, or is treated as not meeting,
the benefit accrual condition.

(6E) Provision under subsection (6D) may be made by amending this
section.””

(4) 10In subsection (7), before the definition of “pension” insert—

• ““a superannuation fund is a “defined benefits arrangement” if
  all the benefits that may be provided by the fund are defined
  benefits within the meaning of Part 4 of the Finance Act 2004;

• a superannuation fund is a “money purchase arrangement” if
  15all the benefits provided by the fund are money purchase
  benefits within the meaning of that Part of that Act;”.”

(5) The amendments made by this paragraph are to be treated as having come
into force on 6 April 2017.

(6) But the amendments made by this paragraph do not apply in relation to
20annuities so far as relating to—

(a) contributions made before 6 April 2017, in the case of a money
purchase arrangement, or

(b) rights accrued before 6 April 2017, in the case of a defined benefits
arrangement.

(7) 25The reference in sub-paragraph (6)(b) to rights accrued before 6 April 2017
includes any increase in the value of those rights in the tax year 2017-18 or
any subsequent tax year to the extent that the increase does not exceed the
relevant percentage in that tax year.

(8) Section 615(6B)(a) and (6C) of ICTA (meaning of increase in value of rights
30and relevant percentage), as inserted by this paragraph, apply for the
purposes of sub-paragraph (7).

Part 3 Lump sums for UK residents from foreign pension schemes

Introductory

4 35ITEPA 2003 is amended as follows.

Employer-financed retirement benefit schemes: ending of foreign-service relief

5 (1) Section 395B (exemption or reduction for foreign service) is amended as
follows.

(2) In subsection (1) (conditions for entitlement to exemption or reduction),
40after paragraph (c) insert—

“(ca) the recipient is not resident in the United Kingdom in the tax
year in which the lump sum is received,”.”

(3) In subsection (8) (meaning of “foreign service”), for “413(2)” substitute
“395C”.

(4) The amendments made by this paragraph have effect for the tax year 2017-
18 and subsequent tax years.

6 5After section 395B insert—

“395C Meaning of “foreign service” in section 395B

(1) In section 395B “foreign service” means service to which subsection
(2), (3), (6) or (8) applies.

(2) This subsection applies to service in or after the tax year 2013–14—

(a) 10to the extent that it consists of duties performed outside the
United Kingdom in respect of which earnings would not be
relevant earnings, or

(b) if a deduction equal to the whole amount of the earnings
from the employment was or would have been allowable
15under Chapter 6 of Part 5 (deductions from seafarers’
earnings).

(3) This subsection applies to service in or after the tax year 2003–04 but
before the tax year 2013–14 such that—

(a) any earnings from the employment would not be relevant
20earnings, or

(b) a deduction equal to the whole amount of the earnings from
the employment was or would have been allowable under
Chapter 6 of Part 5 (deductions from seafarers’ earnings).

(4) In subsection (2) “relevant earnings” means earnings for a tax year
25that are earnings to which section 15 applies and to which that
section would apply even if the employee made a claim under
section 809B of ITA 2007 (claim for remittance basis) for that year.

(5) In subsection (3) “relevant earnings” means—

(a) for service in or after the tax year 2008–09, earnings—

(i) 30which are for a tax year in which the employee is
ordinarily UK resident,

(ii) to which section 15 applies, and

(iii) to which that section would apply, even if the
employee made a claim under section 809B of ITA
352007 (claim for remittance basis) for that year, and

(b) for service before the tax year 2008–09, general earnings to
which section 15 or 21 as originally enacted applies.

(6) This subsection applies to service before the tax year 2003–04 and
after the tax year 1973–74 such that—

(a) 40the emoluments from the employment were not chargeable
under Case I of Schedule E, or would not have been so
chargeable had there been any, or

(b) a deduction equal to the whole amount of the emoluments
from the employment was or would have been allowable
45under a foreign earnings deduction provision.

(7) In subsection (6) “foreign earnings deduction provision” means—

(a) paragraph 1 of Schedule 2 to FA 1974,

(b) paragraph 1 of Schedule 7 to FA 1977, or

(c) section 192A or 193(1) of ICTA.

(8) This subsection applies to service before the tax year 1974-75 such
5that tax was not chargeable in respect of the emoluments of the
employment—

(a) in the tax year 1956–57 or later, under Case I of Schedule E, or

(b) in earlier tax years, under Schedule E,

or it would not have been so chargeable had there been any such
10emoluments.””

7 In section 554Z4 (treatment of relevant step: residence issues), after
subsection (6) insert—

“(7) Subsection (4) does not apply if—

(a) the relevant step is the payment of a lump sum,

(b) 15the payment of the lump sum is the provision of a relevant
benefit under an employer-financed retirement benefits
scheme, and

(c) the person by whom the lump sum is received is resident in
the United Kingdom in the tax year in which the lump sum is
20received.

(8) In subsection (7)—

• “employer-financed retirement benefits scheme” has the same
  meaning as in Chapter 2 of Part 6 (see section 393A), and

• “relevant benefit” has the same meaning as in that Chapter (see
  25section 393B).””

Lump sums under other foreign schemes

8 In section 573 (foreign pensions), after subsection (3) insert—

“(4) This section also applies to a pension paid by or on behalf of a person
who is outside the United Kingdom to a person who is not resident
30in the United Kingdom if—

(a) the pension is a relevant lump sum paid under a pension
scheme to that person in respect of a member of the scheme,
and

(b) the member is, or immediately before the member’s death
35was, resident in the United Kingdom.””

9 In section 574(1) (foreign pensions: meaning of “pension”), after paragraph
(a) insert—

“(aa) a relevant lump sum (see section 574A),”.”

10 (1) After section 574 insert—

“574A 40 “Pension”: relevant lump sums

(1) A lump sum paid under a pension scheme to a member of the
scheme, or to a person in respect of a member of the scheme, is “a
relevant lump sum” for the purposes of this Chapter if—

(a) the scheme is none of the following—

(i) 45a registered pension scheme,