Finance Bill

House of Commons

Session 2003 - 04
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Finance Bill

Finance Bill
Part 4 — Pension schemes etc
Chapter 5 — Registered pension schemes: tax charges
180

214
Overseas scheme transfers: money purchase arrangements
(1)
This section applies in the case of a recognised overseas scheme arrangement
that was a money purchase arrangement.
(2)
The relevant relievable amount is—
(a)
if the recognised overseas scheme arrangement was a cash balance
5
arrangement, the cash balance relevant relievable amount (see
subsections (3) to (5)), and
(b)
if the recognised overseas scheme arrangement was any other sort of
money purchase arrangement, the other money purchase relevant
relievable amount (see subsections (6) and (7)).
10
(3)
The cash balance relevant relievable amount is—
(a)
the amount arrived at by the application of subsection (4) in relation to
the part of the overseas arrangement active membership period during
which the individual was not a relevant overseas individual, or
(b)
if there have been two or more parts of that period during which the
15
individual was not a relevant overseas individual, the aggregate of the
amounts arrived at by the application of subsection (4) in relation to
each of those parts of that period.
(4)
The amount arrived at by the application of this subsection in relation to any
part of the overseas arrangement active membership period is—
20
where—
CV is the closing value of the individual’s rights under the arrangement,
and
OV is the opening value of the individual’s rights under the arrangement.
(5)
For the purposes of subsection (4)—
25
(a)
the closing value of the individual’s rights under the recognised
overseas scheme arrangement is the amount which would have been
available for the provision of benefits to or in respect of the individual
under the arrangement on the assumption that the individual became
entitled to the benefits at the end of that part of that period, and
30
(b)
the opening value of the individual’s rights under the arrangement is
the amount which would have been available for the provision of
benefits to or in respect of the individual under the arrangement on the
assumption that the individual became entitled to the benefits at the
beginning of that part of that period.
35
(6)
The other money purchase relevant relievable amount is—
(a)
the amount arrived at by the application of subsection (7) in relation to
the part of the overseas arrangement active membership period during
which the individual was not a relevant overseas individual, or
(b)
if there have been two or more parts of that period during which the
40
individual was not a relevant overseas individual, the aggregate of the
amounts arrived at by the application of subsection (7) in relation to
each of those parts of that period.
(7)
The amount arrived at by the application of this subsection in relation to any
part of the overseas arrangement active membership period is the amount of
45
the contributions made under the arrangement by or in respect of the

Finance Bill
Part 4 — Pension schemes etc
Chapter 5 — Registered pension schemes: tax charges
181

individual in any part of the overseas arrangement active membership period
during which the individual was a not relevant overseas individual.
215
Overseas scheme transfers: other arrangements
(1)
This section applies in the case of a recognised overseas scheme arrangement
that was not a money purchase arrangement.
5
(2)
The relevant relievable amount is—
(a)
if the recognised overseas scheme arrangement was a defined benefits
arrangement, the defined benefits relevant relievable amount (see
subsections (3) and (4)), and
(b)
if the recognised overseas scheme arrangement was a hybrid
10
arrangement, the hybrid relevant relievable amount (see subsections
(5) to (7)).
(3)
The defined benefits relevant relievable amount is—
(a)
the amount arrived at by the application of subsection (4) in relation to
the part of the overseas arrangement active membership period during
15
which the individual was not a relevant overseas individual, or
(b)
if there have been two or more parts of that period during which the
individual was not a relevant overseas individual, the aggregate of the
amounts arrived at by the application of subsection (4) in relation to
each of those parts of that period.
20
(4)
The amount arrived at by the application of this subsection in relation to any
part of the overseas arrangement active membership period is—
where—
RVF is the relevant valuation factor (see section 263),
PE is the amount of the pension which would have been payable to the
25
individual under the recognised overseas scheme arrangement if the
individual had become entitled to payment of it at the end of that part
of that period,
LSE is the amount of the lump sum to which the individual would have
been entitled under the arrangement (otherwise than by commutation
30
of pension) if the individual had become entitled to payment of it at the
end of that part of that period,
PB is the amount of the pension which would have been payable to the
individual under the arrangement if the individual had become
entitled to payment of it at the beginning of that part of that period, and
35
LSB is the amount of the lump sum to which the individual would have
been entitled under the arrangement (otherwise than by commutation
of pension) if the individual had become entitled to payment of it at the
beginning of that part of that period.
(5)
The hybrid arrangement relevant relievable amount is the greater or greatest
40
of such of—
(a)
what would be the cash balance relevant relievable amount (under
section 214) if the recognised overseas scheme arrangement had been a
cash balance arrangement,

Finance Bill
Part 4 — Pension schemes etc
Chapter 5 — Registered pension schemes: tax charges
182

(b)
what would be the other money purchase relevant relievable amount
(under that section) if that arrangement had been any other sort of
money purchase arrangement, and
(c)
what would be the defined benefits relevant relievable amount (under
subsections (3) and (4)) if that arrangement had been a defined benefits
5
arrangement,

as are relevant to that arrangement.
(6)
An amount is relevant to a hybrid arrangement if, in any circumstances, the
benefits that may be provided to or in respect of the individual under the
arrangement may be benefits linked to that amount.
10
(7)
For that purpose—
(a)
cash balance benefits are linked to the cash balance relevant relievable
amount,
(b)
other money purchase benefits are linked to the other money purchase
relevant relievable amount, and
15
(c)
defined benefits are linked to the defined benefits relevant relievable
amount.
Annual allowance charge
216
Annual allowance charge
(1)
A charge to income tax, to be known as the annual allowance charge, arises
20
where—
(a)
the total pension input amount for a tax year in the case of an individual
who is a member of one or more registered pension schemes, exceeds
(b)
the amount of the annual allowance for the tax year.
(2)
The person liable to the annual allowance charge is the individual.
25
(3)
The individual is liable to the annual allowance charge whether or not—
(a)
the individual, and
(b)
the scheme administrator of the pension scheme or schemes concerned,

are resident, ordinarily resident or domiciled in the United Kingdom.
(4)
The annual allowance charge is a charge at the rate of 40% in respect of the
30
amount by which the total pension input amount exceeds the amount of the
annual allowance.
(5)
That excess is not to be treated as income for any purpose of the Tax Acts.
(6)
The following sections make further provision about the annual allowance
charge—
35

section 217 (annual allowance),

section 218 (total pension input amount to be aggregate of pension input
amounts for pension input periods ending in tax year),

sections 219 to 226 (pension input amounts), and

section 227 (pension input period).
40
(7)
Schedule 34 contains (in Part 4) transitional provision about the annual
allowance charge.

Finance Bill
Part 4 — Pension schemes etc
Chapter 5 — Registered pension schemes: tax charges
183

217
Annual allowance
(1)
The annual allowance for the tax year 2006-07 is £215,000.
(2)
The annual allowance for each subsequent tax year is such amount, not being
less than the annual allowance for the immediately preceding tax year, as is
specified by order made by the Treasury.
5
218
Total pension input amount
(1)
The total pension input amount is arrived at by aggregating the pension input
amounts in respect of each arrangement relating to the individual under a
registered pension scheme of which the individual is a member.
(2)
The pension input amount in respect of an arrangement—
10
(a)
is the amount arrived at under sections 219 to 221 if it is a cash balance
arrangement,
(b)
is the amount arrived at under section 222 if it is any other sort of
money purchase arrangement,
(c)
is the amount arrived at under sections 223 to 225 if it is a defined
15
benefits arrangement, and
(d)
is the amount arrived at under section 226 if it is a hybrid arrangement.
(3)
But there is no pension input amount in respect of an arrangement if, before the
end of the tax year, the individual—
(a)
has become entitled to all the benefits which may be provided to the
20
individual under the arrangement, or
(b)
has died.
219
Cash balance arrangements
(1)
The pension input amount in respect of a cash balance arrangement is the
amount of any increase in the value of the individual’s rights under the
25
arrangement during the pension input period of the arrangement that ends in
the tax year.
(2)
There is an increase in the value of the individual’s rights under the
arrangement during the pension input period if—
(a)
the opening value of the individual’s rights under the arrangement, is
30
exceeded by
(b)
the closing value of the individual’s rights under the arrangement.
(3)
The amount of the increase in the value of the individual’s rights under the
arrangement during the pension input period is the amount of that excess.
(4)
The opening value of the individual’s rights under the arrangement is the
35
amount which would be available for the provision of benefits to or in respect
of the individual on the assumption that the individual became entitled to the
benefits at the beginning of the pension input period.
(5)
The closing value of the individual’s rights under the arrangement is the
amount which would be available for the provision of benefits to or in respect
40
of the individual on the assumption that the individual became entitled to the
benefits at the end of the pension input period.

Finance Bill
Part 4 — Pension schemes etc
Chapter 5 — Registered pension schemes: tax charges
184

(6)
Section 220 (uprating of opening value) and section 221 (adjustments of closing
value) supplement this section.
220
Cash balance arrangements: uprating of opening value
(1)
This section applies for adjusting the opening value of the individual’s rights
as calculated under section 219(4).
5
(2)
The opening value is to be increased by the appropriate percentage.
(3)
The appropriate percentage is whichever is the greatest of—
(a)
5%,
(b)
the percentage (if any) by which the retail prices index for the month in
which the pension input period ends is higher than it was for the month
10
in which it began, and
(c)
if provision made by regulations made by the Board of Inland Revenue
applies in relation to the arrangement, the percentage to which the
regulations refer.
221
Cash balance arrangements: adjustments of closing value
15
(1)
This section applies for adjusting the closing value of the individual’s rights
under the arrangement as calculated under section 219(5).
(2)
If, during the pension input period, the rights of the individual under the
arrangement have been reduced by having become subject to a pension debit,
the amount of the debit is to be added.
20
(3)
If, during the pension input period, the rights of the individual under the
arrangement have been increased by the individual having become entitled to
a pension credit deriving from the same or another registered pension scheme,
the amount of the credit is to be subtracted.
(4)
Subsection (5) applies if, during the pension input period, the rights of the
25
individual under the arrangement have been reduced by virtue of a transfer of
any sum or asset held for the purposes of, or representing accrued rights under,
the arrangement so as to become held for the purposes of, or to represent rights
under, any other pension scheme that is—
(a)
a registered pension scheme, or
30
(b)
a recognised overseas pension scheme.
(5)
The aggregate of the amount of any sums transferred and the market value of
any assets transferred is to be added.
(6)
Subsection (7) applies if, during the pension input period, the rights of the
individual under the arrangement have been increased by virtue of a transfer
35
of any sums or assets held for the purposes of, or representing accrued rights
under, any pension scheme so as to become held for the purposes of, or to
represent rights under, the arrangement.
(7)
The aggregate of the amount of any sums transferred and the market value of
any assets transferred is to be subtracted.
40
(8)
If, during the pension input period, a benefit crystallisation event occurs in
relation to the individual and the arrangement, the amount crystallised is to be
added (but this is subject to section 218(3)).

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Part 4 — Pension schemes etc
Chapter 5 — Registered pension schemes: tax charges
185

(9)
If, during the pension input period, minimum payments are made 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),

in relation to the individual in connection with the arrangement, the amount
paid is to be subtracted.
5
222
Other money purchase arrangements
(1)
The pension input amount in respect of a money purchase arrangement other
than a cash balance arrangement is the total of—
(a)
any relievable pension contributions paid by or on behalf of the
individual under the arrangement, and
10
(b)
contributions paid in respect of the individual under the arrangement
by an employer of the individual,

during the pension input period of the arrangement that ends in the tax year.
(2)
The references to contributions in subsection (1)(a) and (b) do not include
minimum payments under—
15
(a)
section 8 of the Pension Schemes Act 1993, or
(b)
section 4 of the Pension Schemes (Northern Ireland) Act 1993 (c. 49),

or any amount recovered under regulations made under subsection (3) of
either of those sections.
(3)
When at any time contributions paid under a pension scheme by an employer
20
otherwise than in respect of any individual become held for the purposes of the
provision under an arrangement under the pension scheme of benefits to or in
respect of an individual, they are to be treated as being contributions paid at
that time in respect of the individual under the arrangement.
223
Defined benefits arrangements
25
(1)
The pension input amount in respect of a defined benefits arrangement is the
amount of any increase in the value of the individual’s rights under the
arrangement during the pension input period of the arrangement that ends in
the tax year.
(2)
There is an increase in the value of the individual’s rights under the
30
arrangement during the pension input period if—
(a)
the opening value of the individual’s rights under the arrangement, is
exceeded by
(b)
the closing value of the individual’s rights under the arrangement.
(3)
The amount of the increase in the value of the individual’s rights under the
35
arrangement during the pension input period is the amount of that excess.
(4)
The opening value of the individual’s rights under the arrangement is—
where—
PB is the amount of the pension which would have been payable to the
individual under the arrangement if the individual had become
40
entitled to payment of it at the beginning of the pension input period,
and
LSB is the amount of the lump sum to which the individual would have
been entitled under the arrangement (otherwise than by commutation

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Part 4 — Pension schemes etc
Chapter 5 — Registered pension schemes: tax charges
186

of pension) if the individual had become entitled to the payment of it at
that time.
(5)
The closing value of the individual’s rights under the arrangement is—
where—
PE is the amount of the pension which would have been payable to the
5
individual under the arrangement if the individual had become
entitled to payment of it at the end of the pension input period, and
LSE is the amount of the lump sum to which the individual would have
been entitled under the arrangement (otherwise than by commutation
of pension) if the individual had become entitled to the payment of it at
10
that time.
(6)
Section 224 (uprating of opening value) and section 225 (adjustments of closing
value) supplement this section.
224
Defined benefits arrangements: uprating of opening value
(1)
This section applies for adjusting the opening value of the individual’s rights
15
as calculated under section 223(4) in a case where rights do not accrue to the
individual under the arrangement during the pension input period.
(2)
The opening value is to be increased by the appropriate percentage.
(3)
The appropriate percentage is whichever is the greatest of—
(a)
5%,
20
(b)
the percentage (if any) by which the retail prices index for the month in
which the pension input period ends is higher than it was for the month
in which it began, and
(c)
if provision made by regulations made by the Board of Inland Revenue
applies in relation to the arrangement, the percentage to which the
25
regulations refer.
225
Defined benefits arrangements: adjustments of closing value
(1)
This section applies for adjusting the closing value of the individual’s rights as
calculated under section 223(5).
(2)
If, during the pension input period, the rights of the individual under the
30
arrangement have been reduced by having become subject to a pension debit,
the amount of the debit is to be added.
(3)
If, during the pension input period, the rights of the individual under the
arrangement have been increased by the individual having become entitled to
a pension credit deriving from the same or another registered pension scheme,
35
the amount of the credit is to be subtracted.
(4)
Subsection (5) applies if, during the pension input period, there is a transfer
relating to the individual of any sum or asset held for the purposes of, or
representing accrued rights under, the arrangement so as to become held for
the purposes of, or to represent rights under, any other pension scheme that
40
is—
(a)
a registered pension scheme, or
(b)
a recognised overseas pension scheme.