Finance Bill

House of Lords

Session 2013 - 14
Internet Publications
Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 22 — Transitional provision relating to reduction in standard lifetime allowance etc
Part 1 — “Fixed protection 2014”
332

(b)
if it is a permitted transfer by virtue of sub-paragraph (8)(b) of that
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
5
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 (if the employment is transferred) as if the
employment with the transferee were the employment with the
transferor.
10
      (9)
Sub-paragraphs (2A) to (2C) of paragraph 12 of Schedule 36 to FA 2004
(“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).
15
     (11)
Increases in the value of the individual’s rights under an arrangement are to
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
20
provision for the value of the rights of the individual to increase
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—
(i)
that percentage (or, where more than one arrangement
25
includes such provision, the higher or highest of the
percentages specified), plus
(ii)
the relevant statutory increase percentage;
(b)
otherwise—
(i)
the percentage by which the consumer prices index for the
30
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.
     (13)
In sub-paragraph (12)(a)—
35
“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;
“predecessor registered pension scheme”, in relation to a pension
40
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
relation to a tax year, means the percentage increase in the value of the
45
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

Finance Bill
Schedule 22 — Transitional provision relating to reduction in standard lifetime allowance etc
Part 1 — “Fixed protection 2014”
333

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);
5
(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
10
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—
15
(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
20
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.
25
     (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
30
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
35
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
40
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
45
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

Finance Bill
Schedule 22 — Transitional provision relating to reduction in standard lifetime allowance etc
Part 2 — Other provision
334

230 to 237 of FA 2004 greater than nil in respect of the arrangement
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)
5
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
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).
10
2     (1)
The Commissioners for Her Majesty’s Revenue and Customs may by
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
15
relation to a time before the regulations are made; but—
(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
20
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
amended from time to time by regulations under paragraph 2.
4     (1)
Regulations under paragraph 2 or 3 may include supplementary or
incidental provision.
25
      (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
subject to annulment in pursuance of a resolution of the House of Commons.
Part 2
30
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.
      (2)
After subsection (5B) insert—
“(5BA)
Where the operation of a lifetime allowance enhancement factor is
35
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
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.
40

Finance Bill
Schedule 22 — Transitional provision relating to reduction in standard lifetime allowance etc
Part 2 — Other provision
335

(5BB)
Where more than one lifetime allowance enhancement factor
operates, subsection (5BA) does not apply if subsection (5A) or (5B)
applies.”
      (3)
After subsection (5C) insert—
“(5D)
Where benefit crystallisation event 7 occurs on or after 6 April 2014
5
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
allowance at the time of the benefit crystallisation event is
£1,500,000.”
10
      (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
subsection (5) insert—
“(5A)
If paragraph 7 of Schedule 36 (primary protection) makes provision
15
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.”
      (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.
20
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
commencement lump sums) after sub-paragraph (8) insert—
    “(9)
Sub-paragraph (10) applies if the member is a protected individual
25
(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
if that is greater than CSLA.
     (11)
The member is a “protected individual” if—
30
(a)
paragraph 7 of Schedule 36 (primary protection) makes
provision for a lifetime allowance enhancement factor in
relation to the member, or
(b)
at the time the member becomes entitled to the lump sum,
paragraph 12 of that Schedule (enhanced protection)
35
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.
      (4)
In paragraph 8 (which applies for the purpose of determining trivial
commutation lump sums) for sub-paragraphs (2) and (3) substitute—
40
    “(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—

Finance Bill
Schedule 23 — Employee shareholder shares
Part 1 — Income tax treatment of employee shareholder shares
336


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—
5
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.
10
Schedule 23
Section 55

Employee shareholder shares
Part 1
Income tax treatment of employee shareholder shares
1
ITEPA 2003 is amended in accordance with paragraphs 2 to 15.
15
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—
20
“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.
25
(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).
(3)
The amount is—
30

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.

But if P exceeds MV, the amount is nil.
35

Finance Bill
Schedule 23 — Employee shareholder shares
Part 1 — Income tax treatment of employee shareholder shares
337

(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.
(6)
For the purposes of this section and sections 226B to 226D—
5
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
virtue of which an employee is an employee shareholder (see
10
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;
“employee” and “employer company”, in relation to an
15
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));
“market value” has the same meaning as it has for the purposes
20
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
to be determined ignoring—
25
(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
30
(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
35
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
40
(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.
45
(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

Finance Bill
Schedule 23 — Employee shareholder shares
Part 1 — Income tax treatment of employee shareholder shares
338

treated as having made for each of the shares is an amount equal to
the appropriate proportion of the market value of that share.
(5)
The “appropriate proportion” is the following—

where V is the total market value of the shares acquired by the
employee on the day.
5
(6)
This section is subject to—
(a)
section 226C (only one payment deemed to be made under
agreements with associated companies), and
(b)
section 226D (no deemed payment if shareholder or a
connected person has a material interest in the company).
10
(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
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).
15
226C
Only one payment deemed to be made under associated agreements
(1)
An employee who is treated as having made a payment under
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.
20
(2)
“Qualifying shares” means employee shareholder shares in—
(a)
the employer company in relation to the relevant agreement,
or
(b)
an associated company of that company,

which are acquired by the employee in consideration of an
25
agreement within subsection (3).
(3)
An agreement is within this subsection if it is—
(a)
another employee shareholder agreement with the same
employer company, or
(b)
an employee shareholder agreement with an associated
30
company of that company.
(4)
For the purposes of this section—
(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
35
persons, and
(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
40
employee shareholder agreement is entered into with that
employee.
(5)
But subsection (4)(b) does not apply as between two companies if—
(a)
one of the companies has been dissolved,