Taxation of Pensions Bill (HL Bill 66)

respect of an arrangement relating to the individual in the
capacity of a nominee or successor of the member, and

(d) it is paid to a charity nominated by the member or, if the
member made no nomination, by the individual.”

(3) 5In sub-paragraph (3) (cases where lump sum exceeds the permitted
maximum) for “or (2)” substitute “, (2) or (2A)”.

(4) In sub-paragraph (4) (meaning of “permitted maximum”) after
“arrangement” insert “, or the nominee’s or successor’s flexi-access
drawdown fund in respect of the arrangement,”.

10Related amendments in regulations

16 (1) Regulation 12 of the Registered Pension Schemes (Transfer of Sums and
Assets) Regulations 2006 (S.I. 2006/499S.I. 2006/499) (drawdown funds—recognised
transfers) is amended as follows.

(2) In the heading before “—recognised” insert “and nominee’s flexi-access
15drawdown fund and successor’s flexi-access drawdown fund”.

(3) In paragraph (1) (transfer recognised only if transferred items are only items
held under arrangement to which transfer made) before “member’s
drawdown pension fund” insert “nominee’s flexi-access drawdown fund,
successor’s flexi-access drawdown fund,”.

(4) 20The amendments made by this paragraph—

(a) come into force on 6 April 2015, and

(b) are to be treated as having been made by the Commissioners for Her
Majesty’s Revenue and Customs under the powers to make
regulations conferred by section 169(1D) and (1E) of FA 2004 (as
25amended by this Schedule).

Part 2 Lump sum death benefits

Special lump sum death benefits charge

17 (1) Section 206 of FA 2004 (special lump sum death benefits charge) is amended
30as follows.

(2) After subsection (1) insert—

“(1ZA) In subsection (1) the reference to a member (and to the member’s
death) are to be read—

(a) in relation to—

(i) 35a drawdown pension fund lump sum death benefit
under paragraph 17(2) of Schedule 29, or

(ii) a flexi-access drawdown fund lump sum death
benefit under paragraph 17A(2) of Schedule 29,

as a reference to a dependant (and to the dependant’s death),

(b) 40in relation to a flexi-access drawdown fund lump sum death
benefit under paragraph 17A(3) of Schedule 29, as a reference
to a nominee (and to the nominee’s death), and

(c) in relation to a flexi-access drawdown fund lump sum death
benefit under paragraph 17A(4) of Schedule 29, as a reference
to a successor (and to the successor’s death).”

(3) After subsection (1A) insert—

“(1B) 5The special lump sum death benefits charge also arises where—

(a) a lump sum death benefit is paid by a registered pension
scheme in respect of a member of the scheme who had not
reached the age of 75 at the date of the member’s death,

(b) the lump sum death benefit is—

(i) 10a drawdown pension fund lump sum death benefit
under paragraph 17(1) of Schedule 29,

(ii) a flexi-access drawdown fund lump sum death
benefit under paragraph 17A(1) of Schedule 29, or

(iii) an uncrystallised funds lump sum death benefit, and

(c) 15the lump sum death benefit is not paid before the end of 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 expected to
20have known of it.

(1C) The special lump sum death benefits charge also arises where—

(a) a lump sum death benefit is paid by a registered pension
scheme on the death of a dependant, nominee or successor of
a deceased member of the scheme,

(b) 25the dependant, nominee or successor (“the beneficiary”) had
not reached the age of 75 at the date of the beneficiary’s
death,

(c) the lump sum death benefit is—

(i) a drawdown pension fund lump sum death benefit
30under paragraph 17(2) of Schedule 29, or

(ii) a flexi-access drawdown fund lump sum death
benefit under paragraph 17A(2), (3) or (4) of Schedule
29, and

(d) the lump sum death benefit is not paid before the end of the
35period of two years beginning with the earlier of the day on
which the scheme administrator of the scheme first knew of
the beneficiary’s death and the day on which the scheme
administrator could first reasonably have been expected to
have known of it.”

(4) 40For subsection (7) (lump sum death benefits which are not to be treated as
income for tax purposes) substitute—

“(7) A lump sum death benefit in respect of which income tax is charged
under this section is not to be treated as income for any purpose of
the Tax Acts.”

(5) 45In consequence of sub-paragraph (4) omit paragraph 41(5) of Schedule 16 to
FA 2011.

18 In section 280(2) of FA 2004 (index of defined expressions) in the entry for
“special lump sum death benefits charge” for “206(1)” substitute “206”.

Uncrystallised funds lump sum death benefit

19 (1) In paragraph 15 of Schedule 29 to FA 2004 (uncrystallised funds lump sum
death benefit)—

(a) in sub-paragraph (1) omit the second sentence (lump sum is
5uncrystallised funds lump sum death benefit only if paid before end
of relevant two-year period), and

(b) omit sub-paragraph (1A) (meaning of “relevant two-year period” in
the second sentence of sub-paragraph (1)).

(2) In paragraph 16 of Schedule 32 to FA 2004 (benefit crystallisation event 7:
10uncrystallised funds lump sum death benefit is a “relevant lump sum death
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
15age 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
20relation 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
25expected 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) 30after 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
35benefit 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) 40paragraphs 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
45on 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
crystallised), in the table, after the entry relating to benefit crystallisation
5event 5B insert—

22 (1) Section 217 of FA 2004 (persons liable to lifetime allowance charge) is
20amended 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) After subsection (2) insert—

“(2A) 25Where 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)
substitute—

“(3) 30Subsection (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
crystallised by them.

(4) 35The 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
relevant post-death benefit crystallisation events having occurred as
40appears 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
benefit crystallisation event 5C or 7.”

(6) The amendment made by sub-paragraph (5) comes into force on 6 April
52015.

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) 10after “more than one” insert “relevant post-death”,

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

(c) for “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
15“relevant post-death benefit crystallisation event” if it is benefit
crystallisation event 5C or 7.”

(4) The 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) 20In paragraph 1 (meaning of “the relevant pension schemes”: in certain cases
means schemes of which the individual was a member immediately before
death) before “7” insert “5C or”.

(3) After paragraph 14A insert—

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

14B 25For the purposes of benefit crystallisation event 5C “the relevant
two-year period”, in relation to relevant unused uncrystallised
funds 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
30of the day on which the scheme administrator of the scheme first
knew of the individual’s death and the day on which the scheme
administrator could first reasonably have been expected to have
known of it.

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

14C (1) 35For the purposes of benefit crystallisation event 5C, sums or assets
held after the death of the individual for the purposes of a money
purchase arrangement relating to the individual under any of the
relevant pension schemes are relevant unused uncrystallised
funds if—

(a) 40they are unused uncrystallised funds, and

(b) the individual had not reached the age of 75 at the date of
the 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.”

Part 4 Income tax on beneficiaries’ income withdrawal

25 (1) 5ITEPA 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
10pension 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) 15the 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) 20Subsection (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
25under 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
302004) 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
35beginning 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) 40in 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) 45an 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
paragraphs 21 and 27D of Schedule 28 to FA 2004),

(bb) 5an 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
of paragraph 27J of Schedule 28 to FA 2004),”.

(4) 10In 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 Exemption for beneficiaries’ income withdrawal in some cases

(1) 15Section 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
member’s death, and

(b) 20to 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,

in respect of a money purchase arrangement under a
25registered 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
a registered pension scheme where the beneficiary had not
30reached 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
under a registered pension scheme,

35and 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
drawdown pension fund in respect of a money purchase
40arrangement under a registered pension scheme (“the drawdown
fund”) if before 6 April 2015—

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

(i) the drawdown fund, or

(ii) 45any 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) the 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
5respect of a deceased member of a registered pension scheme to a
person 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) 10became 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) arise, or (directly or indirectly) derive, from any such
15newly-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
the person from the person’s dependant’s drawdown
20pension 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
sums or assets that to any extent make up, the new fund.

(6) 25Where 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) as a result of the designation make up (to any extent) a
30person’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) are not so designated before the end of the relevant two-year
35period,

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
representing the whole or any part of those relevant unused
40uncrystallised funds.

(7) In this section—

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

• 45“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
  and 27K of Schedule 28 to FA 2004,

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

Taxation of Pensions BillPage 78

• “the relevant two-year period”, in relation to relevant unused
  uncrystallised funds held for the purposes of a money
  purchase arrangement relating to a deceased individual
  under a registered pension scheme, means the period of two
  5years 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
  administrator could first reasonably have been expected to
  have known of it.

(8) 10For 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) they are unused uncrystallised funds, and

(b) 15the 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
(8)(a).”

(6) 20In 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

• ““successors’ income withdrawal” has the meaning
  25given 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
nominees’ income withdrawal or successors’ income withdrawal,”.

(7) 30The amendments made by sub-paragraphs (2) to (5) have effect in relation to
pension paid on or after 6 April 2015.