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Finance Bill


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

168

 

201     

Valuation of uncrystallised rights for purposes of section 199

(1)   

Rights are uncrystallised if the member is not entitled to the present payment

of benefits in respect of the rights.

(2)   

The member is to be treated as entitled to the present payment of benefits in

respect of the sums and assets representing the member’s unsecured pension

5

fund or alternatively secured pension fund.

(3)   

The value of the member’s uncrystallised rights under the arrangement on any

date is to be calculated—

(a)   

in accordance with subsection (4) if the arrangement is a cash balance

arrangement,

10

(b)   

in accordance with subsection (5) if the arrangement is a money

purchase arrangement other than a cash balance arrangement,

(c)   

in accordance with subsection (6) if the arrangement is a defined

benefits arrangement, and

(d)   

in accordance with subsection (8) if the arrangement is a hybrid

15

arrangement.

(4)   

If this subsection applies, the value of the member’s uncrystallised rights

under the arrangement on the date is the amount which would be available for

the provision of benefits in respect of those rights if the member became

entitled to benefits in respect of those rights on the date.

20

(5)   

If this subsection applies, the value of the member’s uncrystallised rights

under the arrangement on the date is the aggregate of—

(a)   

the amount of such of the sums held for the purposes of the

arrangement on the date as represent those rights, and

(b)   

the market value of such of the assets held for the purposes of the

25

arrangement on the date as represent those rights.

(6)   

If this subsection applies, the value of the member’s uncrystallised rights

under the arrangement on the date is—equation: plus[id[cross[times[char[R],char[V],char[F]],times[char[A],char[R],char[P]]]],times[

char[L],char[S]]]

   

where—

   

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

30

   

ARP is the annual rate of pension to which the member would (on the

assumptions in subsection (7)) have been entitled under the

arrangement on the date if, on that date, the member had acquired an

actual (rather than a prospective) right to receive a pension in respect

of the rights, and

35

   

LS is the amount of any lump sum to which the member would (on those

assumptions) have been entitled on the date (otherwise than by way of

commutation of pension) if, on the date, the member had acquired an

actual (rather than a prospective) right to payment of a lump sum in

respect of the rights.

40

(7)   

The assumptions referred to in the definitions of ARP and LS are—

(a)   

if the member has not reached normal minimum pension age on the

date, that the member reached that age on that date, and

(b)   

that the member’s right to receive a pension and a lump sum had not

been occasioned by physical or mental impairment.

45

 

 

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

169

 

(8)   

If this subsection applies, the value of the member’s uncrystallised rights

under the arrangement on the date is—

(a)   

if each of subsections (4), (5) and (6) is relevant, the greatest of the

values of the rights calculated in accordance with each of those

subsections, or

5

(b)   

if only two of those subsections are relevant, the greater of the values of

the rights calculated in accordance with each of the two subsections.

(9)   

Subsection (4) is relevant if, in any circumstances, cash balance benefits may be

provided to or in respect of the member under the arrangement.

(10)   

Subsection (5) is relevant if, in any circumstances, money purchase benefits

10

other than cash balance benefits may be provided to or in respect of the

member under the arrangement.

(11)   

Subsection (6) is relevant if, in any circumstances, defined benefits may be

provided to or in respect of the member under the arrangement.

202     

Surchargeable unauthorised employer payments

15

(1)   

This section identifies which unauthorised employer payments made by a

registered pension scheme to or in respect of a sponsoring employer are

surchargeable.

(2)   

If the surcharge threshold is reached before the end of the period of 12 months

beginning with a reference date, each unauthorised employer payment made

20

to or in respect of the employer 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.

(4)   

The first reference date is the date on which the pension scheme first makes an

25

unauthorised employer payment to or in respect of the employer.

(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

employer payment to or in respect of the employer.

(6)   

The previous reference period is the period of 12 months beginning with the

30

previous reference date or, if the surcharge threshold is reached in that period,

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

35

the pension fund used up by each unauthorised employer payment made by

the pension scheme to or in respect of the employer on or after the reference

date.

(9)   

The percentage of the pension fund used up on the occasion of an unauthorised

employer payment is—equation: cross[over[times[char[U],char[E],char[P]],times[char[A],char[A]]],num[100.00000000,

"100"]]

40

   

where—

   

UEP is the amount of the unauthorised employer payment, and

 

 

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

170

 

   

AA is an amount equal to the aggregate of the amount of the sums and the

market value of the assets held for the purposes of the pension scheme

at the time when the unauthorised employer payment is made.

Lifetime allowance charge

203     

Lifetime allowance charge

5

(1)   

A charge to income tax, to be known as the lifetime allowance charge, arises

where—

(a)   

a benefit crystallisation event occurs in relation to an individual who is

a member of one or more registered pension schemes, and

(b)   

either the first lifetime allowance charge condition or the second

10

lifetime allowance charge condition is met.

(2)   

The first lifetime allowance charge condition is that—

(a)   

the whole or any part of the individual’s lifetime allowance is available

on the benefit crystallisation event, but

(b)   

the amount crystallised by the benefit crystallisation event exceeds the

15

amount of the individual’s lifetime allowance which is available on the

benefit crystallisation event.

(3)   

The second lifetime allowance charge condition is that none of the individual’s

lifetime allowance is available on the benefit crystallisation event.

(4)   

The following sections make further provision about the lifetime allowance

20

charge—

   

section 204 (amount of charge),

   

section 205 and Schedule 32 (benefit crystallisation events and amounts

crystallised),

   

section 206 (persons liable to charge),

25

   

section 207 (individual’s lifetime allowance and standard lifetime

allowance),

   

section 208 (availability of individual’s lifetime allowance), and

   

sections 209 to 215 (lifetime allowance enhancement factors).

(5)   

In sections 204 to 208

30

(a)   

references to “the individual”, in relation to the lifetime allowance

charge, are to the individual in relation to whom the benefit

crystallisation event giving rise to the charge occurs, and

(b)   

references to “the pension scheme”, in relation to the lifetime allowance

charge, are to the pension scheme to which the benefit crystallisation

35

event giving rise to the charge, or the amount crystallised by it, relates.

(6)   

Schedule 34 contains (in Part 2) transitional provision about the lifetime

allowance charge.

204     

Amount of charge

(1)   

The lifetime allowance charge is a charge in respect of the chargeable amount.

40

(2)   

The lifetime allowance charge is a charge—

(a)   

at the rate of 55% in respect of so much (if any) of the chargeable

amount as constitutes the lump-sum amount, and

 

 

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

171

 

(b)   

at the rate of 25% in respect of so much (if any) of the chargeable

amount as constitutes the retained amount.

(3)   

The “chargeable amount” is the aggregate of—

(a)   

the basic amount, and

(b)   

any amount which is treated as forming part of the lump-sum amount

5

under subsection (6) or of the retained amount under subsection (8).

(4)   

The “basic amount”—

(a)   

if the first lifetime allowance condition is met, is the amount by which

the amount crystallised by the benefit crystallisation event exceeds the

amount of the individual’s lifetime allowance available on it, and

10

(b)   

if the second lifetime allowance charge condition is met, is the amount

crystallised by the benefit crystallisation event.

(5)   

The “lump-sum amount” is the aggregate of—

(a)   

so much of the basic amount as is paid as a lump sum to the individual

or a lump sum death benefit in respect of the individual, and

15

(b)   

any amount which is treated as forming part of the lump-sum amount

under subsection (6).

(6)   

If and to the extent that the tax payable under this section on any of the lump-

sum amount is covered by a scheme-funded tax payment, it is to be treated as

itself forming part of the lump-sum amount.

20

(7)   

The “retained amount” is the aggregate of—

(a)   

so much of the basic amount as is not paid as a lump sum to the

individual or a lump sum death benefit in respect of the individual, and

(b)   

any amount which is treated as forming part of the retained amount

under subsection (8).

25

(8)   

If and to the extent that the tax payable under this section on any of the retained

amount is covered by a scheme-funded tax payment, it is to be treated as itself

forming part of the retained amount.

(9)   

An amount of tax payable under this section is “covered by a scheme-funded

tax payment” if—

30

(a)   

the tax is paid by the scheme administrator, and

(b)   

the individual’s rights under the pension scheme are not reduced so as

fully to reflect the amount of the payment of tax.

(10)   

Whether the individual’s rights under the pension scheme are reduced so as

fully to reflect the amount of the payment of tax is to be determined in

35

accordance with normal actuarial practice.

(11)   

The chargeable amount is not to be treated as income for any purpose of the

Tax Acts.

205     

Benefit crystallisation events and amounts crystallised

(1)   

This table sets out—

40

(a)   

the events which are benefit crystallisation events in relation to the

individual, and

(b)   

the amount which is crystallised by each of those events.

 

 

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

172

 
 

BENEFIT CRYSTALLISATION

AMOUNT CRYSTALLISED

 
 

EVENTS

  
 

1. The designation of sums or assets

The aggregate of the amount of the

 
 

held for the purposes of a money

sums and the market value of the

 
 

purchase arrangement under any of

assets designated

 

5

 

the relevant pension schemes as

  
 

available for the payment of

  
 

unsecured pension to the individual

  
 

2. The individual becoming entitled

  
 

to a scheme pension under any of

  

10

 

the relevant pension schemes

  
 

3. The individual, having become so

  
 

entitled, becoming entitled to

  
 

payment of the scheme pension,

  
 

otherwise than in excepted

  

15

 

circumstances, at an annual rate

  
 

which exceeds the rate at which it

  
 

was last paid by more than the

  
 

permitted margin

  
 

4. The individual becoming entitled

The aggregate of the amount of such

 

20

 

to a lifetime annuity purchased

of the sums, and the market value of

 
 

under a money purchase

such of the assets, representing the

 
 

arrangement under any of the

individual’s rights under the

 
 

relevant pension schemes

arrangement as are applied to

 
  

purchase the lifetime annuity

 

25

 

5. The individual reaching the age of

  
 

75 when prospectively entitled to a

  
 

scheme pension, or a lump sum, (or

  
 

both) under a defined benefits

  
 

arrangement under any of the

  

30

 

relevant pension schemes

  
 

6. The individual becoming entitled

The amount of the lump sum

 
 

to a relevant lump sum under any of

  
 

the relevant pension schemes

  
 

7. A person being paid a relevant

The amount of the lump sum death

 

35

 

lump sum death benefit in respect of

benefit

 
 

the individual under any of the

  
 

relevant pension schemes

  
 

8. The transfer of sums or assets held

The aggregate of the amount of any

 
 

for the purposes of, or representing

sums transferred and the market

 

40

 

accrued rights under, any of the

value of any assets transferred

 
 

relevant pension schemes so as to

  
 

become held for the purposes of or

  
 

to represent rights under a

  
 

recognised overseas pension scheme

  

45

 

in connection with the individual’s

  
 

membership of that pension scheme

  
 

 

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

173

 

(2)   

Schedule 32 gives the meaning of expressions used in the table in subsection

(1).

206     

Persons liable to charge

(1)   

The persons liable to the lifetime allowance charge are—

(a)   

the individual, and

5

(b)   

the scheme administrator of the pension scheme,

   

and their liability is joint and several.

(2)   

But where the liability arises by reason of the payment of a relevant lump sum

death benefit it is a liability of the person to whom the lump sum death benefit

is paid.

10

(3)   

Subsection (4) applies if—

(a)   

more than one relevant lump sum death benefit is paid in respect of an

individual, and

(b)   

tax is not chargeable on the whole amount of all of them.

(4)   

In that case each of the persons to whom any of the relevant lump sum death

15

benefits is paid is liable under subsection (2) to such portion of the total amount

of the tax payable by reason of their having been paid as appears to the Inland

Revenue to be just and reasonable.

(5)   

A person who is liable to the lifetime allowance charge under subsection (2) is

assessable accordingly.

20

(6)   

A person is liable to the lifetime allowance charge whether or not—

(a)   

that person,

(b)   

any other person who is liable to the lifetime allowance charge, and

(c)   

the scheme administrator (if not so liable),

   

are resident, ordinarily resident or domiciled in the United Kingdom.

25

207     

Individual’s lifetime allowance and standard lifetime allowance

(1)   

Subject as follows, the individual’s lifetime allowance is the standard lifetime

allowance.

(2)   

The standard lifetime allowance for the tax year 2006-07 is £1,500,000.

(3)   

The standard lifetime allowance for each subsequent tax year is such amount,

30

not being less than the standard lifetime allowance for the immediately

preceding tax year, as is specified by order made by the Treasury.

(4)   

Where one or more lifetime allowance enhancement factors operate in relation

to a benefit crystallisation event occurring in relation to the individual, the

individual’s lifetime allowance at the time of the benefit crystallisation event

35

is—equation: plus[times[char[S],char[L],char[A]],id[cross[times[char[S],char[L],char[A]],times[

char[L],char[A],char[E],char[F]]]]]

where—

SLA is the standard lifetime allowance at the time of the benefit

crystallisation event, and

LAEF is the lifetime allowance enhancement factor which operates with

40

respect to the benefit crystallisation event and individual or (where

more than one so operates) the aggregate of them.

 

 

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

174

 

(5)   

The following make provision for the operation of lifetime allowance

enhancement factors—

   

section 209 (pension credits from previously crystallised rights),

   

sections 210 to 212 (individuals who are not always relevant UK

individuals),

5

   

sections 213 to 215 (transfers from recognised overseas pension schemes),

   

paragraphs 7 to 11 of Schedule 34 (“primary protection”: pre-

commencement funds above £1,500,000), and

   

paragraph 17 of that Schedule (pre-commencement pension credits).

(6)   

Paragraph 18 of that Schedule makes provision for the reduction of what

10

would otherwise be the individual’s lifetime allowance in certain cases where

the individual is permitted to take pension before normal minimum pension

age.

208     

Availability of individual’s lifetime allowance

(1)   

This section is about the availability of the individual’s lifetime allowance on

15

the occurrence of a benefit crystallisation event in relation to the individual

(“the current benefit crystallisation event”).

(2)   

If no benefit crystallisation event has occurred in relation to the individual

before the current benefit crystallisation event, the whole of the individual’s

lifetime allowance is available on the current benefit crystallisation event.

20

(3)   

If one or more benefit crystallisation events have occurred in relation to the

individual before the current benefit crystallisation event—

(a)   

in a case in which the previously-used amount is equal to or greater

than the amount of the individual’s lifetime allowance, none of the

individual’s lifetime allowance is available on the current benefit

25

crystallisation event, and

(b)   

in any other case, so much of the individual’s lifetime allowance as is

left after deducting the previously-used amount is available on the

current benefit crystallisation event.

(4)   

The previously-used amount is—

30

(a)   

where one benefit crystallisation event has occurred in relation to the

individual before the current benefit crystallisation event, the amount

crystallised by the previous benefit crystallisation event as adjusted

under subsection (5), or

(b)   

where two or more benefit crystallisation events have occurred in

35

relation to the individual before the current benefit crystallisation

event, the aggregate of the amounts crystallised by each previous

benefit crystallisation event as adjusted under subsection (5).

(5)   

The adjustment of the amount crystallised by a previous benefit crystallisation

event referred to in subsection (4)(a) and (b) is the multiplication of that

40

amount by—equation: over[times[char[C],char[S],char[L],char[A]],times[char[P],char[S],char[L],char[A]]]

   

where—

   

CSLA is the standard lifetime allowance at the time of the current benefit

crystallisation event, and

 

 

 
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