Finance Bill

House of Commons

Session 2003 - 04
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Finance Bill

Finance Bill
Part 4 — Pension schemes etc
Chapter 3 — Payments by registered pension schemes
149

172
Effect of unauthorised borrowing: money purchase arrangements
(1)
Subsection (2) applies if a registered pension scheme borrows in respect of a
money purchase arrangement an amount which it is not authorised to borrow
under section 171(3).
(2)
The pension scheme is to be treated as having made a scheme chargeable
5
payment—
(a)
if subsection (3) applies, of an amount calculated in accordance with
subsection (4), and
(b)
otherwise, of the amount borrowed.
(3)
This subsection applies if, immediately before the amount is borrowed—
10
(4)
If subsection (3) applies, the amount of the scheme chargeable payment is—
(5)
In subsections (3) and (4)—

APB is the aggregate of the amounts previously borrowed in respect of the
arrangement (excluding any amounts which have been repaid),

AB is the amount borrowed, and
15

VA is the value of the arrangement, calculated in accordance with section
171, immediately before the amount is borrowed.
173
Unauthorised borrowing: other arrangements
(1)
A registered pension scheme is not authorised to borrow an amount in respect
of any arrangement which is not a money purchase arrangement unless the
20
scheme borrowing condition is met.
(2)
The scheme borrowing condition is met if—

where—

APB is the aggregate of the amounts previously borrowed by the pension
scheme in respect of arrangements which are not money purchase
25
arrangements (excluding any amounts which have been repaid),

PB is the amount proposed to be borrowed by the pension scheme, and

AARA is the aggregate amount of the relevant sums and assets.
(3)
The aggregate amount of the relevant sums and assets is the aggregate of—
(a)
the amount of the sums held for the purposes of such of the
30
arrangements under the pension scheme as are not money purchase
arrangements, and
(b)
the market value of the assets held for the purposes of such of the
arrangements under the pension scheme as are not money purchase
arrangements.
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Finance Bill
Part 4 — Pension schemes etc
Chapter 4 — Registered pension schemes: tax reliefs and exemptions
150

174
Effect of unauthorised borrowing: other arrangements
(1)
Subsection (2) applies if a registered pension scheme borrows, in respect of an
arrangement which is not a money purchase arrangement, an amount which it
is not authorised to borrow under section 173.
(2)
The pension scheme is to be treated as having made a scheme chargeable
5
payment—
(a)
if subsection (3) applies, of an amount calculated in accordance with
subsection (4), and
(b)
otherwise, of the amount borrowed.
(3)
This subsection applies if, immediately before the amount is borrowed—
10
(4)
If subsection (3) applies, the amount of the scheme chargeable payment is—
(5)
In subsections (3) and (4)—

APB is the aggregate of the amounts previously borrowed by the pension
scheme in respect of arrangements which are not money purchase
arrangements (excluding any amount which has been repaid),
15

AB is the amount borrowed, and

AARA is the aggregate amount of the relevant sums and assets, calculated
in accordance with section 173(3), immediately before the amount is
borrowed.
Chapter 4
20
Registered pension schemes: tax reliefs and exemptions
Scheme investments
175
Income
(1)
No liability to income tax arises in respect of—
(a)
income derived from investments or deposits held for the purposes of
25
a registered pension scheme, or
(b)
underwriting commissions applied for the purposes of a registered
pension scheme which would otherwise be chargeable to tax under
Case VI of Schedule D.
(2)
The exemption provided by subsection (1) does not apply to income derived
30
from investments or deposits held as a member of a property investment LLP;
and for this purpose “income” includes relevant stock lending fees, in relation
to any investments, to which subsection (1) would apply by virtue of section
129B of ICTA (inclusion of relevant stock lending fees in income).
(3)
In this Part “investments”, in relation to a registered pension scheme, includes
35
futures contracts and options contracts; and income derived from transactions
relating to futures contracts or options contracts is to be treated as derived from
the contracts.

Finance Bill
Part 4 — Pension schemes etc
Chapter 4 — Registered pension schemes: tax reliefs and exemptions
151

(4)
For that purpose a contract is not prevented from being a futures contract or an
options contract by the fact that a party is or may be entitled to receive or liable
to make, or entitled to receive and liable to make, only a payment of a sum (as
opposed to a transfer of assets) in full settlement of all obligations.
176
Chargeable gains
5
(1)
Section 271 of TCGA 1992 (exemptions) is amended as follows.
(2)
In paragraph (b) of subsection (1), for the words after “part of” substitute “the
Fund mentioned in section 613(4) of the Taxes Act (House of Commons
Members’ Fund);”.
(3)
In subsection (1), omit—
10
(a)
paragraph (d) (retirement annuity contracts),
(b)
paragraph (g) (exempt approved schemes),
(c)
paragraph (h) (approved personal pension schemes), and
(d)
paragraph (j) (authorised unit trusts which are also approved personal
pension schemes or exempt approved schemes),
15

and the second sentence.
(4)
After that subsection insert—
“(1A)
A gain accruing to a person on a disposal of investments held for the
purposes of a registered pension scheme is not a chargeable gain.”
(5)
Omit subsection (2) (superannuation funds approved before 6th April 1980).
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(6)
In subsection (10)—
(a)
for “subsections (1)(g) and (h) and (2)” substitute “subsection (1A)”, and
(b)
omit the words after “options contracts”.
(7)
In subsection (12), for “Subsection (1)(b), (c), (d), (g) and (h) and subsection (2)”
substitute “Subsections (1)(b) and (c) and (1A)”.
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Members’ contributions
177
Relief for contributions
(1)
An individual who is an active member of a registered pension scheme is
entitled to relief under this section in respect of relievable pension
contributions paid during a tax year if the individual is a relevant UK
30
individual for that year.
(2)
In this Part “relievable pension contributions” means contributions by or on
behalf of the individual under the pension scheme other than contributions to
which subsection (3) applies.
(3)
This subsection applies to—
35
(a)
any contributions paid after the individual has reached the age of 75,
(b)
any contributions paid by an employer of the individual (as to which
see sections 185 to 190), and
(c)
any amounts paid by the Board of Inland Revenue under section 42A(3)
or 43 of the Pension Schemes Act 1993 (c. 48) or section 38A(3) or 39 of
40
the Pension Schemes (Northern Ireland) Act 1993 (c. 49) (rebates and
minimum contributions).

Finance Bill
Part 4 — Pension schemes etc
Chapter 4 — Registered pension schemes: tax reliefs and exemptions
152

(4)
For the purposes of this Part a pension credit which increases the rights of the
individual under the pension scheme is only to be treated as a contribution on
behalf of the individual if it derives from a pension scheme that is not a
registered pension scheme.
(5)
For the purposes of this Part—
5
(a)
any other transfer of any sum held for the purposes of, or representing
accrued rights under, a pension scheme so as to become held for the
purposes of, or to represent rights under, another pension scheme, and
(b)
any transfer lump sum death benefit,

is not to be treated as a contribution.
10
(6)
Any amount recovered by the individual’s employer under regulations made
under—
(a)
section 8(3) of the Pension Schemes Act 1993 (recovery of minimum
payments), or
(b)
section 4(3) of the Pension Schemes (Northern Ireland) Act 1993,
15
(corresponding provision for Northern Ireland),

in respect of minimum payments made to a registered pension scheme is to be
treated for the purposes of this section (and sections 180 to 183) as a
contribution paid by the individual under the pension scheme.
(7)
References in the Income Tax Acts to relief in respect of life assurance
20
premiums do not include relief under this section.
(8)
The following sections make further provision about relief under this section—

section 178 (relevant UK individual),

section 179 (annual limit for relief),

sections 180 to 183 (methods of giving relief), and
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section 184 (transfer of certain shares to be treated as payment of
contribution).
178
Relevant UK individual
(1)
For the purposes of this Part an individual is a relevant UK individual for a tax
year if—
30
(a)
the individual has relevant UK earnings chargeable to income tax for
that year,
(b)
the individual is resident in the United Kingdom at some time during
that year,
(c)
the individual was resident in the United Kingdom both at some time
35
during the five tax years immediately before that year and when the
individual became a member of the pension scheme, or
(d)
the individual, or the individual’s spouse, has for the tax year general
earnings from overseas Crown employment subject to UK tax.
(2)
In this Part “relevant UK earnings” means—
40
(a)
employment income,
(b)
income which is chargeable under Schedule D and is immediately
derived from the carrying on or exercise of a trade, profession or
vocation (whether individually or as a partner acting personally in a
partnership), and
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(c)
income to which section 529 of ICTA (patent income of an individual in
respect of inventions) applies.

Finance Bill
Part 4 — Pension schemes etc
Chapter 4 — Registered pension schemes: tax reliefs and exemptions
153

(3)
“General earnings from overseas Crown employment subject to UK tax” has
the meaning given by section 28 of ITEPA 2003.
179
Annual limit for relief
(1)
The maximum amount of relief to which an individual is entitled under section
177 (relief for contributions) for a tax year is (subject as follows) the amount of
5
the individual’s relevant UK earnings which are chargeable to income tax for
the tax year.
(2)
If the amount of the individual’s relevant UK earnings which are chargeable to
income tax for the tax year is less than the basic amount, the maximum amount
of relief to which the individual is entitled under section 177 for the tax year is
10
increased by the difference between—
(a)
the amount of the individual’s relevant UK earnings which are so
chargeable, and
(b)
the basic amount,

(so that, if the individual has no relevant UK earnings which are so chargeable,
15
the maximum amount of such relief is the basic amount).
(3)
Subsection (2) is subject to section 180(7) (limit on methods of giving relief to
which individual is entitled by virtue of subsection (2)).
(4)
“The basic amount” is £3,600 or such greater amount as the Treasury may by
order specify.
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(5)
Subsections (1) and (2) do not apply in relation to any amount of relief to which
an individual is entitled under section 177 in respect of any amount recovered
by the individual’s employer under regulations made under—
(a)
section 8(3) of the Pension Schemes Act 1993 (c. 48) (recovery of
minimum payments), or
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(b)
section 4(3) of the Pension Schemes (Northern Ireland) Act 1993 (c. 49)
(corresponding provision for Northern Ireland).
180
Methods of giving relief
(1)
Relief to which an individual is entitled under section 177 (relief for
contributions) in respect of contributions is to be given as provided by this
30
section.
(2)
Subject as follows, the relief is to be given in accordance with section 181 (relief
at source).
(3)
Subject to subsection (7), relief in respect of contributions under a pension
scheme made by a member of the pension scheme may (instead of being given
35
in accordance with section 181) be given in accordance with section 182 (relief
under net pay arrangements) if—
(a)
the pension scheme is an occupational pension scheme,
(b)
the member is an employee of a sponsoring employer, and
(c)
relief in respect of contributions made under the pension scheme by all
40
of the other members of the pension scheme who are employees of the
sponsoring employer is given in accordance with that section.
(4)
Subject to subsection (7), relief in respect of contributions under a pension
scheme made by a member of the pension scheme may (instead of being given
in accordance with section 181) be given in accordance with section 182 if—
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Finance Bill
Part 4 — Pension schemes etc
Chapter 4 — Registered pension schemes: tax reliefs and exemptions
154

(a)
the pension scheme is a public service pension scheme or marine pilots’
benefits fund, and
(b)
the member is an employee.
(5)
Subject to subsection (7), subsection (6) applies where—
(a)
contributions are made under a public service pension scheme or
5
marine pilots’ benefit fund by a member who is not an employee, or
(b)
contributions are made otherwise than by a member of the pension
scheme under a net pay pension scheme.
(6)
Relief in respect of the contributions—
(a)
may (but need not) be given in accordance with section 181, but
10
(b)
where not so given, is to be given in accordance with section 183 (relief
on making of claim).
(7)
Relief to which an individual is entitled by virtue of section 179(2)—
(a)
may only be given in accordance with section 181, and
(b)
is not required to be given in respect of contributions under a net pay
15
pension scheme.
(8)
In this section “marine pilots’ benefits fund” means—
(a)
a fund established under section 15(1)(i) of the Pilotage Act 1983 (c. 21),
or
(b)
any scheme supplementing or replacing such a fund.
20
(9)
In this Part “net pay pension scheme” means a pension scheme in the case of
which some or all of the members of the pension scheme are entitled to be
given relief in accordance with section 182 in respect of the payment of
contributions by them under the pension scheme.
(10)
Schedule 34 contains (in Part 4) transitional provision about relief in respect of
25
contributions to pre-commencement retirement annuity contracts.
181
Relief at source
(1)
Where an individual is entitled to be given relief in accordance with this section
in respect of the payment of a contribution under a pension scheme, the
individual or other person by whom the contribution is paid is entitled, on
30
making the payment, to deduct and retain out of it a sum equal to income tax
on the contribution at the basic rate for the tax year in which the payment is
made.
(2)
If a sum is deducted from the payment of the contribution—
(a)
the scheme administrator must allow the deduction on receipt of the
35
residue,
(b)
the individual or other person is acquitted and discharged of so much
money as is represented by the deduction as if the sum had actually
been paid, and
(c)
the sum deducted is to be treated as income tax paid by the scheme
40
administrator.
(3)
When the payment of the contribution is received—
(a)
the scheme administrator is entitled to recover from the Board of Inland
Revenue the amount which is treated as income tax paid by the scheme
administrator in relation to the contribution, and
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Finance Bill
Part 4 — Pension schemes etc
Chapter 4 — Registered pension schemes: tax reliefs and exemptions
155

(b)
any amount so recovered is to be treated for the purposes of the Tax
Acts in the same manner as the payment of the contribution.
(4)
If (apart from this subsection) income tax or capital gains tax at the higher rate
is chargeable in respect of any part of the individual’s total income or
chargeable gains for the tax year, on the making of a claim the basic rate limit
5
for that year in the individual’s case is increased by the amount of the
contribution.
(5)
For the purposes of sections 257(5) and 257A(5) of ICTA (age related
allowances), the individual’s total income for the tax year is to be treated as
reduced by the amount of the contribution.
10
(6)
Subsections (1) and (2) have effect subject to such conditions as the Board of
Inland Revenue may prescribe by regulations.
(7)
The Board of Inland Revenue may by regulations make provision for carrying
subsections (1) to (3) into effect, in particular by making provision—
(a)
about how a sum is to be recovered under subsection (3)(a) (including
15
the manner in which claims for the recovery of a sum is to be made),
(b)
for the giving of such information, in such form, as may be prescribed
by or under the regulations,
(c)
for the inspection of documents by persons authorised by the Board of
Inland Revenue, and
20
(d)
specifying the consequences of failure to comply with conditions
prescribed by virtue of subsection (6).
(8)
Regulations under this section may, in particular—
(a)
modify the operation of any provision of the Tax Acts, or
(b)
provide for the application of any provision of the Tax Acts (with or
25
without modification).
(9)
Where, after relief is given to an individual in accordance with this section for
a tax year, an assessment, alteration of an assessment or other adjustment of the
individual’s liability to tax is made, any appropriate consequential
adjustments are to be made in relief given to the individual in accordance with
30
this section.
(10)
Where relief is given to an individual in accordance with this section for a tax
year in respect of a contribution, relief is not to be given—
(a)
in respect of the contribution under any other provision of the Income
Tax Acts, or
35
(b)
(in the case of a contribution under an annuity contract) in respect of
any other premium or consideration for an annuity under the same
contract.
182
Relief under net pay arrangements
(1)
This section applies where an individual is entitled to be given relief in
40
accordance with this section in respect of the payment of a contribution under
a pension scheme.
(2)
The amount of the contribution is to be allowed to be deducted by the
sponsoring employer from the employment income from the individual’s
employment with the employer for the tax year in which the payment is made.
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(3)
A deduction may be made only once in respect of the same contribution.