Finance Bill

House of Commons

Session 2003 - 04
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Other Bills before Parliament

Finance Bill

Finance Bill
Part 4 — Pension schemes etc
Chapter 4 — Registered pension schemes: tax reliefs and exemptions
156

(4)
A claim for excess relief may be made if—
(a)
the amount of the contributions paid by an individual under one or
more relevant net pay pension schemes in a tax year exceeds the
employment income from the individual’s employment or
employments with the sponsoring employer or employers for the tax
5
year, or
(b)
it is not possible for the sponsoring employer or employers for any
other reason to deduct the whole amount of the contribution from the
individual’s employment income.
(5)
A net pay pension scheme is a relevant net pay pension scheme if the members
10
of the pension scheme entitled to be given relief in accordance with this section
in respect of the payment of contributions by them under the pension scheme
include the individual.
(6)
On the making of the claim for excess relief the amount of the excess may be
deducted from the total income of the individual for the tax year.
15
(7)
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
this section.
20
(8)
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 in respect of it under
any other provision of the Income Tax Acts.
183
Relief on making of claim
(1)
Where an individual is entitled to be given relief in accordance with this section
25
in respect of the payment of a contribution, on the making of a claim the
amount of the contribution may be deducted from the total income of the
individual for the tax year in which the payment is made.
(2)
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
30
individual’s liability to tax is made, any appropriate consequential
adjustments are to be made in relief given to the individual in accordance with
this section.
(3)
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—
35
(a)
in respect of the contribution under any other provision of the Income
Tax Acts, or
(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.
40
184
Transfer of certain shares to be treated as payment of contribution
(1)
For the purposes of sections 177 to 183 (relief for contributions) references to
contributions paid by an individual include contributions made in the form of
the transfer by the individual of eligible shares in a company within the
permitted period.
45

Finance Bill
Part 4 — Pension schemes etc
Chapter 4 — Registered pension schemes: tax reliefs and exemptions
157

(2)
For the purposes of those sections the amount of a contribution made by way
of a transfer of shares is the market value of the shares at the date of the
transfer.
(3)
“Eligible shares”, in relation to a contribution made by an individual, means
shares—
5
(a)
which the individual has exercised a right to acquire in accordance with
the provisions of an SAYE option scheme, or
(b)
which have been appropriated to the individual in accordance with the
provisions of a share incentive plan.
(4)
“The permitted period”—
10
(a)
in relation to shares which the individual has exercised a right to
acquire in accordance with the provisions of an SAYE option scheme,
is the period of 90 days following the exercise of that right, and
(b)
in relation to shares which have been appropriated to the individual in
accordance with the provisions of a share incentive plan, is the period
15
of 90 days following the date when the individual directed the trustees
of the share incentive plan to transfer the ownership of the shares to the
individual.
(5)
In this section—

“SAYE option scheme” has the same meaning as in the SAYE code (see
20
section 516 of ITEPA 2003 (approved SAYE option schemes)), and

“share incentive plan” has the same meaning as in the SIP code (see
section 488 of ITEPA 2003 (approved share incentive plans)).
Employers’ contributions
185
Relief for employers in respect of contributions paid
25
(1)
This section makes provision about an employer’s entitlement to relief in
respect of contributions paid by the employer under a registered pension
scheme in respect of any individual.
(2)
For the purposes of Case I or II of Schedule D—
(a)
the contributions are to be treated as not being payments of a capital
30
nature to the extent that they otherwise would be, and
(b)
if they are allowed to be deducted in computing the amount of the
profits of the employer, they are deductible in computing the amount
of the profits for the period of account in which they are paid.
(3)
For the purposes of section 75 of ICTA (expenses of management: companies
35
with investment business), the contributions—
(a)
are to be treated as being expenses of management to the extent that
they otherwise would not be, and
(b)
are referable to the accounting period in which they are paid.
(4)
For the purposes of section 76 of ICTA (expenses of insurance companies), the
40
contributions—
(a)
are to be brought into account at Step 1 in subsection (5) of that section
to the extent that they otherwise would not be, and
(b)
are referable to the accounting period in which they are paid.

Finance Bill
Part 4 — Pension schemes etc
Chapter 4 — Registered pension schemes: tax reliefs and exemptions
158

(5)
The references in this section to contributions include minimum payments
under—
(a)
section 8 of the Pension Schemes Act 1993 (c. 48), or
(b)
section 4 of the Pension Schemes (Northern Ireland) Act 1993 (c. 49),

other than any part recovered from a member of the pension scheme under
5
regulations made under subsection (3) of either of those sections.
(6)
This section is subject to sections 186 and 187 (spreading of relief) (and to
transitional provision contained in Part 4 of Schedule 34).
186
Spreading of relief
(1)
This section applies where—
10
(a)
contributions are paid by an employer under a registered pension
scheme in two consecutive chargeable periods (“the previous
chargeable period” and “the current chargeable period”), and
(b)
the amount of the contributions paid in the current chargeable period
otherwise than for an excepted purpose (“CCCP”) exceeds 210% of the
15
amount of the contributions paid in the previous chargeable period
(“CPCP”).
(2)
Relief under section 185 (relief for employers in respect of contributions paid)
is to be given in respect of so much of CCCP as exceeds 110% of CPCP (“the
amount of the relevant excess contributions”) in accordance with subsections
20
(4) and (5).
(3)
But subsection (2)—
(a)
does not apply if the amount of the relevant excess contributions is less
than £500,000, and
(b)
has effect subject to section 187 (cessation of business).
25
(4)
A fraction of the whole of the amount of the relevant excess contributions is to
be treated for the purposes of section 185 as if it had been paid in the chargeable
period, or in each of the two or three chargeable periods, immediately after the
current chargeable period (leaving only the remainder to be treated as paid in
the current chargeable period).
30
(5)
The following table specifies (by reference to the amount of the relevant excess
contributions)—
(a)
the fraction of the whole of the amount of the relevant excess
contributions which is to be treated as paid in the chargeable period, or
in each of the two or three chargeable periods, immediately after the
35
current chargeable period, and
(b)
the chargeable period or periods in which it is to be treated as paid.

AMOUNT OF THE RELEVANT
FRACTION AND CHARGEABLE

EXCESS CONTRIBUTIONS
PERIOD OR PERIODS

£500,000 or more but less than
One-half of the whole of the amount

40

£1,000,000
of the relevant excess contributions

is to be treated as paid in the

chargeable period immediately after

the current chargeable period

Finance Bill
Part 4 — Pension schemes etc
Chapter 4 — Registered pension schemes: tax reliefs and exemptions
159

AMOUNT OF THE RELEVANT
FRACTION AND CHARGEABLE

EXCESS CONTRIBUTIONS
PERIOD OR PERIODS

£1,000,000 or more but less than
One-third of the whole of the

£2,000,000
amount of the relevant excess

contributions is to be treated as paid

5

in each of the two chargeable

periods immediately after the

current chargeable period

£2,000,000 or more
One-quarter of the whole of the

amount of the relevant excess

10

contributions is to be treated as paid

in each of the three chargeable

periods immediately after the

current chargeable period

(6)
Subsection (7) specifies for the purposes of subsection (1) when contributions
15
paid by the employer in the current chargeable period are paid for an excepted
purpose.
(7)
They are paid for an excepted purpose if paid with a view to funding—
(a)
an increase in the amount of pensions paid to pensioner members of the
pension scheme to reflect increases in the cost of living, or
20
(b)
benefits which may accrue under the pension scheme to or in respect of
individuals who become members of the pension scheme in the current
chargeable period as a result of future service as employees of the
employer.
(8)
Where the previous chargeable period and the current chargeable period are
25
not of equal length, this section has effect as if CPCP were the amount it would
otherwise be as adjusted by being multiplied by the appropriate factor.
(9)
The appropriate factor is—
where—
DCCP is the number of days in the current chargeable period, and
30
DPCP is the number of days in the previous chargeable period.
(10)
In this section “chargeable period” means—
(a)
in a case where the contributions are deducted in computing profits to
be charged under Case I or II of Schedule D, a period of account, and
(b)
in a case where relief in respect of the contributions is given under
35
section 75 or 76 of ICTA (expenses of management: companies with
investment business and expenses of insurance companies), an
accounting period.
187
Spreading of relief: cessation of business
(1)
This section applies if—
40
(a)
the employer ceases to carry on business in the current chargeable
period or a later chargeable period in which section 186(4) would

Finance Bill
Part 4 — Pension schemes etc
Chapter 4 — Registered pension schemes: tax reliefs and exemptions
160

require a fraction of the amount of the relevant excess contributions to
be treated as paid, and
(b)
were section 186(4) to apply, relief in relation to the whole of the
amount of the relevant excess contributions would not be given pre-
cessation.
5
(2)
Relief is given pre-cessation if it is given for the chargeable period in which the
employer ceases to carry on business or any earlier chargeable period.
(3)
The portion of the amount of the relevant excess contributions in relation to
which relief would not have been given pre-cessation (“the unrelieved
portion”) is be treated as paid (at the option of the employer) either—
10
(a)
in the chargeable period in which the employer ceases to carry on
business, or
(b)
as provided by subsection (4).
(4)
This subsection provides that the amount determined under subsection (5) is
to be treated as paid on each day in the period—
15
(a)
beginning with the current chargeable period, and
(b)
ending with the day on which the employer ceases to carry on business,

(“the relevant period”).
(5)
The amount referred to in subsection (4) is—
where—
20
UP is the amount of the unrelieved portion, and
DRP is the number of days in the relevant period.
(6)
Expressions used in this section and section 186 have the same meaning in this
section as in that section.
188
Deemed contributions
25
(1)
This section applies where a sum is paid to the trustees or managers of a
registered pension scheme by an employer in or towards the discharge of any
liability of the employer under—
(a)
section 75 of the Pensions Act 1995 (c. 26) (deficiencies in the assets of
a pension scheme), or
30
(b)
Article 75 of the Pensions (Northern Ireland) Order 1995 (S.I. 1995/3213
(N.I. 22)) (corresponding provision for Northern Ireland).
(2)
The making of the payment is to be treated for the purposes of—
(a)
Case I and II of Schedule D,
(b)
section 75 of ICTA (expenses of management: companies with
35
investment business), and
(c)
section 76 of ICTA (expenses of insurance companies),

as if it were the payment of a contribution by the employer under the pension
scheme.
(3)
Subsections (4) and (5) apply if the employer’s trade, profession, vocation or
40
business is discontinued before the making of the payment.
(4)
The payment is to be relieved—

Finance Bill
Part 4 — Pension schemes etc
Chapter 4 — Registered pension schemes: tax reliefs and exemptions
161

(a)
to the same extent as it would have been but for the discontinuance, and
(b)
as if it had been made on the last day on which the trade, profession,
vocation or business was carried on.
(5)
And for the purposes of section 76 of ICTA it is to be treated (to the extent that
it would not otherwise be) as part of expenses payable falling to be brought
5
into account at Step 1 in subsection (5) of that section.
189
No other relief for employers in connection with contributions
No sums other than contributions paid by an employer under a registered
pension scheme—
(a)
are deductible in computing the amount of the profits of the employer
10
for the purposes of Case I or II of Schedule D,
(b)
are expenses of management for the purposes of section 75 of ICTA
(expenses of management: companies with investment business), or
(c)
are to be brought into account at Step 1 in section 76(5) of ICTA
(expenses of insurance companies),
15
in connection with the cost of providing benefits under the pension scheme.
190
Relief for employees
(1)
In section 307(1) of ITEPA 2003 (exemption for provision made by employer for
retirement or death benefit), after “employer” insert “under a registered
pension scheme or otherwise”.
20
(2)
For section 308 of ITEPA 2003 (exemption of contributions to approved
personal pension arrangements) substitute—
“308
Exemption of contributions to registered pension scheme
No liability to income tax arises in respect of earnings where an
employee’s employer makes contributions under a registered pension
25
scheme.”
Inland Revenue contributions
191
Minimum contributions under pensions legislation
(1)
This section applies where under—
(a)
section 43 of the Pension Schemes Act 1993 (c. 48), or
30
(b)
section 39 of the Pension Schemes (Northern Ireland) Act 1993 (c. 49),

the Board of Inland Revenue pays minimum contributions for the purposes of
a registered pension scheme.
(2)
The amount of the minimum contributions is to be increased by the difference
between—
35
(a)
the amount of the employee’s share of the minimum contributions, and
(b)
the grossed-up equivalent of that amount.
(3)
The amount of the employee’s share of the minimum contributions is the
amount that would be the amount of the minimum contributions if—
(a)
for the reference to the age-related percentage in section 45(1) of the
40
Pension Schemes Act 1993 (amount of minimum contributions) there

Finance Bill
Part 4 — Pension schemes etc
Chapter 4 — Registered pension schemes: tax reliefs and exemptions
162

were substituted a reference to the percentage mentioned in section
41(1A) of that Act (percentage used to reduce primary Class 1
contribution), or
(b)
for the reference to the age-related percentage in section 41(1) of the
Pension Schemes (Northern Ireland) Act 1993 there were substituted a
5
reference to the percentage mentioned in section 37(1A) of that Act
(corresponding provisions for Northern Ireland).
(4)
The “grossed-up equivalent” of the amount of the employee’s share of the
minimum contributions is the sum which, after deduction of income tax at the
basic rate in force for the tax year for which the minimum contributions are
10
paid, is equal to that amount.
(5)
The Board of Inland Revenue may by regulations—
(a)
prescribe circumstances in which this section does not apply, or
(b)
make provision supplementing this section.
(6)
The Board of Inland Revenue must—
15
(a)
pay into the National Insurance Fund out of money provided by
Parliament the amount of any increase attributable to this section in the
sums paid out of that Fund under the Pension Schemes Act 1993, and
(b)
pay into the Northern Ireland National Insurance Fund out of money
provided by Parliament the amount of any increase attributable to this
20
section in the sums paid out of that Fund under the Pension Schemes
(Northern Ireland) Act 1993.
Inheritance tax exemptions
192
Inheritance tax exemptions
(1)
The Inheritance Tax Act 1984 (c. 51) is amended as follows.
25
(2)
In section 12 (dispositions that are not transfers of value)—
(a)
in subsection (2), for the words following “if” substitute “it is a
contribution under a registered pension scheme or section 615(3)
scheme in respect of an employee of the person making the
disposition.”, and
30
(b)
omit subsections (3) and (4).
(3)
In section 58(1) (settled property in which no qualifying interest in possession
subsists but which is not “relevant property”), for paragraph (d) substitute—
“(d)
property which is held for the purposes of a registered pension
scheme or section 615(3) scheme;”.
35
(4)
In section 151 (treatment of pension rights etc.)—
(a)
omit subsections (1) and (1A),
(b)
in subsections (2), (4) and (5), for “fund or scheme to which this section
applies” substitute “registered pension scheme or section 615(3)
scheme”, and
40
(c)
in subsection (2)(b), for the “fund or scheme” (in both places) substitute
“scheme”.
(5)
In section 152 (cash options), for the words from the beginning to “or scheme”
substitute “Where on a person’s death an annuity becomes payable under a