Finance Bill

House of Commons

Session 2003 - 04
Internet Publications
Other Bills before Parliament

Finance Bill

Finance Bill
Part 4 — Pension schemes etc
Chapter 5 — Registered pension schemes: tax charges
163

registered pension scheme or section 615(3) scheme to a widow, widower or
dependant of that person and under the terms of the scheme”.
(6)
In section 272 (general interpretation), insert at the appropriate places—

““registered pension scheme” has the same meaning as in Part 4 of the
Finance Act 2004;”, and
5

““section 615(3) scheme” means a superannuation fund to which section
615(3)of the Taxes Act 1988 applies;”.
Chapter 5
Registered pension schemes: tax charges
Charges on authorised payments
10
193
Authorised pensions and lump sums
(1)
Schedule 31 contains provision about the taxation of pensions and lump sums
which are authorised to be paid by this Part.
(2)
Schedule 34 contains (in Part 4) transitional provision about the taxation of
annuities under existing retirement annuity contracts and other relevant
15
transitional provision.
194
Short service refund lump sum charge
(1)
A charge to income tax, to be known as the short service refund lump sum
charge, arises where a short service refund lump sum is paid by a registered
pension scheme.
20
(2)
The person liable to the short service refund lump sum charge is the scheme
administrator.
(3)
The scheme administrator is liable to the short service refund lump sum charge
whether or not—
(a)
the scheme administrator, and
25
(b)
the person to whom the short service refund lump sum is paid,

are resident, ordinarily resident or domiciled in the United Kingdom.
(4)
The rate of the charge is—
(a)
20% in respect of so much of the lump sum as does not exceed £10,800,
and
30
(b)
40% in respect of so much (if any) of it as exceeds that limit.
(5)
The Treasury may by order amend subsection (4) so as to—
(a)
increase or decrease either or both of the rates for the time being
specified in that subsection, or
(b)
increase the limit for the time being specified in paragraph (a) of that
35
subsection.
(6)
Tax under this section is to be charged on the amount of the lump sum paid or,
if the rules of the pension scheme permit the scheme administrator to deduct
the tax before payment, on the amount of the lump sum before deduction of
tax.
40

Finance Bill
Part 4 — Pension schemes etc
Chapter 5 — Registered pension schemes: tax charges
164

(7)
A short service refund lump sum is not to be treated as income for any purpose
of the Tax Acts.
195
Special lump sum death benefits charge
(1)
A charge to income tax, to be known as the special lump sum death benefits
charge, arises where—
5
(a)
a pension protection lump sum death benefit,
(b)
an annuity protection lump sum death benefit, or
(c)
an unsecured pension fund lump sum death benefit,

is paid by a registered pension scheme.
(2)
The person liable to the special lump sum death benefits charge is the scheme
10
administrator.
(3)
The scheme administrator is liable to the special lump sum death benefits
charge whether or not—
(a)
the scheme administrator, and
(b)
the person to whom the lump sum death benefit is paid,
15

are resident, ordinarily resident or domiciled in the United Kingdom.
(4)
The rate of the charge is 35% in respect of the lump sum death benefit.
(5)
The Treasury may by order increase or decrease the rate for the time being
specified in subsection (4).
(6)
Tax under this section is to be charged on the amount of the lump sum paid or,
20
if the rules of the pension scheme permit the scheme administrator to deduct
the tax before payment, on the amount of the lump sum before deduction of
tax.
(7)
No pension protection lump sum death benefit, annuity protection lump sum
death benefit or unsecured pension fund lump sum death benefit is to be
25
treated as income for any purpose of the Tax Acts.
196
Authorised surplus payments charge
(1)
A charge to income tax, to be known as the authorised surplus payments
charge, arises where an authorised surplus payment is made to a sponsoring
employer by an occupational pension scheme that is a registered pension
30
scheme.
(2)
The person liable to the authorised surplus payments charge is the scheme
administrator.
(3)
The scheme administrator is liable to the authorised surplus payments charge
whether or not—
35
(a)
the scheme administrator, and
(b)
the sponsoring employer,

are resident, ordinarily resident or domiciled in the United Kingdom.
(4)
The rate of the charge is 35% in respect of the authorised surplus payment.
(5)
The Treasury may by order increase or decrease the rate for the time being
40
specified in subsection (4).
(6)
Subsection (1) does not apply to any authorised surplus payment—

Finance Bill
Part 4 — Pension schemes etc
Chapter 5 — Registered pension schemes: tax charges
165

(a)
to the extent that (if this section had not been enacted) the sponsoring
employer would have been exempt, or entitled to claim exemption,
from income tax or corporation tax in respect of it, or
(b)
if the sponsoring employer is a charity.
(7)
An authorised surplus payment in respect of which income tax is charged
5
under this section is not to be treated as income for any purpose of the Tax Acts.
(8)
Schedule 34 contains (in Part 4) transitional provisions about the authorised
surplus payments charge.
Unauthorised payments charge
197
Unauthorised payments charge
10
(1)
A charge to income tax, to be known as the unauthorised payments charge,
arises where an unauthorised payment is made by a registered pension
scheme.
(2)
The person liable to the charge—
(a)
in the case of an unauthorised member payment made before the
15
member’s death, is the member to or in respect of whom the payment
is made,
(b)
in the case of an unauthorised member payment made after the
member’s death, is the recipient, and
(c)
in the case of an unauthorised employer payment, is the sponsoring
20
employer to or in respect of whom the payment is made.
(3)
If more than one person is liable to the unauthorised payments charge in
respect of an unauthorised payment, those persons are jointly and severally
liable to the charge in respect of the payment.
(4)
A person liable to the unauthorised payments charge is assessable accordingly.
25
(5)
A person is liable to the unauthorised payments charge whether or not—
(a)
that person,
(b)
any other person who is liable to the unauthorised payments charge,
and
(c)
the scheme administrator,
30

are resident, ordinarily resident or domiciled in the United Kingdom.
(6)
The rate of the charge is 40% in respect of the unauthorised payment.
(7)
The Treasury may by order increase or decrease the rate for the time being
specified in subsection (6).
(8)
An unauthorised payment may also be subject to—
35
(a)
the unauthorised payments surcharge under section 198, and
(b)
the scheme sanction charge under section 228.
(9)
An unauthorised payment is not to be treated as income for any purpose of the
Tax Acts.

Finance Bill
Part 4 — Pension schemes etc
Chapter 5 — Registered pension schemes: tax charges
166

198
Unauthorised payments surcharge
(1)
A charge to income tax, to be known as the unauthorised payments surcharge,
arises where a surchargeable unauthorised payment is made by a registered
pension scheme.
(2)
“Surchargeable unauthorised payments” means—
5
(a)
surchargeable unauthorised member payments (see section 199), and
(b)
surchargeable unauthorised employer payments (see section 202).
(3)
The person liable to the charge—
(a)
in the case of a surchargeable unauthorised member payment made
before the member’s death, is the member in respect of whose
10
arrangement the payment was made,
(b)
in the case of a surchargeable unauthorised member payment made
after the member’s death, is the recipient, and
(c)
in the case of a surchargeable unauthorised employer payment, is the
sponsoring employer to or in respect of whom the payment was made.
15
(4)
If more than one person is liable to the unauthorised payments surcharge in
respect of a surchargeable unauthorised payment, those persons are jointly
and severally liable to the surcharge in respect of the payment.
(5)
A person liable to the unauthorised payments surcharge is assessable
accordingly.
20
(6)
A person is liable to the unauthorised payments surcharge whether or not—
(a)
that person,
(b)
any other person who is liable to the unauthorised payments
surcharge, and
(c)
the scheme administrator,
25

are resident, ordinarily resident or domiciled in the United Kingdom.
(7)
The rate of the charge is 15% in respect of the surchargeable unauthorised
payment.
(8)
The Treasury may by order increase or decrease the rate for the time being
specified in subsection (7).
30
199
Surchargeable unauthorised member payments
(1)
This section identifies which unauthorised member payments made by a
registered pension scheme in respect of an arrangement relating to a member
under the pension scheme are surchargeable.
(2)
If the surcharge threshold is reached before the end of the period of 12 months
35
beginning with a reference date, each unauthorised member payment made in
respect of the arrangement in the surcharge period is surchargeable.
(3)
The surcharge period is the period—
(a)
beginning with the reference date, and
(b)
ending with the day on which the surcharge threshold is reached.
40
(4)
The first reference date is the date on which the pension scheme first makes an
unauthorised member payment in respect of the arrangement.

Finance Bill
Part 4 — Pension schemes etc
Chapter 5 — Registered pension schemes: tax charges
167

(5)
Each subsequent reference date is the date, after the end of the previous
reference period, on which the pension scheme next makes an unauthorised
member payment in respect of the arrangement.
(6)
The previous reference period is the period of 12 months beginning with the
previous reference date or, if the surcharge threshold is reached in that period,
5
is the surcharge period ending with the date on which it was reached.
(7)
The surcharge threshold is reached if the unauthorised payments percentage
reaches 25%.
(8)
The unauthorised payments percentage is the aggregate of the percentages of
the pension fund used up by each unauthorised member payment made by the
10
pension scheme in respect of the arrangement on or after the reference date.
(9)
The percentage of the pension fund used up on the occasion of an unauthorised
member payment is—

where—

UMP is the amount of the unauthorised member payment, and
15

VR is an amount equal to the value of the member’s rights under the
arrangement when the unauthorised payment is made (or, if the
unauthorised payment is made after the member’s death, at the date of
the member’s death).
(10)
The value of the member’s rights under the arrangement on that date is the
20
aggregate of—
(a)
the value of the member’s crystallised rights under the arrangement on
that date, calculated in accordance with section 200, and
(b)
the value of the member’s uncrystallised rights under the arrangement
on that date, calculated in accordance with section 201.
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200
Valuation of crystallised rights for purposes of section 199
(1)
The value of the member’s crystallised rights under the arrangement on any
date is the aggregate of—
(a)
the value of each scheme pension or lifetime annuity to which the
member has an actual (rather than a prospective) entitlement under the
30
arrangement on that date, and
(b)
the aggregate of the amount of the sums, and the market value of the
assets, representing the member’s unsecured pension fund or
alternatively secured pension fund in respect of the arrangement on
that date (if any).
35
(2)
The value of a scheme pension or lifetime annuity is—

where—

RVF is the relevant valuation factor (see section 263), and

ARP is an amount equal to the annual rate of the pension or annuity on
the date.
40