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
187

(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, there is a transfer
relating to the individual of any sums or assets held for the purposes of, or
representing accrued rights under, any pension scheme so as to become held
5
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.
(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
10
added (but this is subject to section 218(3)).
(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
15
paid is to be subtracted.
226
Hybrid arrangements
(1)
The pension input amount in respect of a hybrid arrangement is the greater or
greatest of such of input amounts A, B and C as are relevant input amounts.
(2)
An input amount is a relevant input amount in the case of a hybrid
20
arrangement if, in any circumstances, the benefits that may be provided to or
in respect of the individual under the arrangement may be benefits of the
variety mentioned in the definition of that input amount.
(3)
Input amount A is what would be the pension input amount under sections 219
to 221 if the benefits provided to or in respect of the individual under the
25
arrangement were cash balance benefits.
(4)
Input amount B is what would be the pension input amount under section 222
if the benefits provided to or in respect of the individual under the
arrangement were other money purchase benefits.
(5)
Input amount C is what would be the pension input amount under sections 223
30
to 225 if the benefits provided to or in respect of the individual under the
arrangement were defined benefits.
227
Pension input period
(1)
In the case of an arrangement under a registered pension scheme the following
are pension input periods—
35
(a)
the period beginning with the relevant commencement date and
ending with the earlier of a nominated date and the anniversary of the
relevant commencement date, and
(b)
each subsequent period beginning immediately after the end of a
period which is a pension input period (under paragraph (a) or this
40
paragraph) and ending with the appropriate date.
(2)
“The relevant commencement date” means—
(a)
in the case of a cash balance arrangement or a defined benefits
arrangement, or a hybrid arrangement the only benefits under which

Finance Bill
Part 4 — Pension schemes etc
Chapter 5 — Registered pension schemes: tax charges
188

may be cash balance benefits or defined benefits, the date on which
rights under the arrangement begin to accrue to or in respect of the
individual,
(b)
in the case of a money purchase arrangement other than a cash balance
arrangement, the first date on which a contribution within section
5
222(1) is made, and
(c)
in the case of a hybrid arrangement not within paragraph (a),
whichever is the earlier of the date mentioned in that paragraph and the
date mentioned in paragraph (b).
(3)
“Nominated date” means—
10
(a)
in the case of a money purchase arrangement other than a cash balance
arrangement, such date as the individual or scheme administrator
nominates, and
(b)
in the case of any other arrangement, such date as the scheme
administrator nominates.
15
(4)
A nomination for the purposes of subsection (3)—
(a)
if by the individual, is to be made by notice to the scheme
administrator, and
(b)
if by the scheme administrator, is to be made by notice to the
individual.
20
(5)
If more than one date is nominated for the purposes of subsection (3)—
(a)
in relation to the period beginning with the relevant commencement
date, or
(b)
in relation to a tax year following that in which the pension input
period beginning with that date ends,
25

the date nominated first is the nominated date.
(6)
“The appropriate date” means the earlier of—
(a)
a nominated date falling in the tax year immediately after that in which
the last pension input period ended, and
(b)
the anniversary of the date on which that period ended.
30
(7)
Once the individual has become entitled to all the benefits which may be
provided to the individual under an arrangement, the last pension input
period in the case of the arrangement is to be treated as having ended when
that was first so.
Scheme sanction charge
35
228
Scheme sanction charge
(1)
A charge to income tax, to be known as the scheme sanction charge, arises
where in any tax year one or more scheme chargeable payments are made by a
registered pension scheme.
(2)
The person liable to the scheme sanction charge is the scheme administrator.
40
(3)
But in the case of a payment treated by virtue of section 151(3) and (4)
(payments under investments acquired with scheme assets) as having been
made by a pension scheme which has been wound up, the person liable to the
scheme sanction charge is the person who was, or each of the persons who

Finance Bill
Part 4 — Pension schemes etc
Chapter 5 — Registered pension schemes: tax charges
189

were, the scheme administrator immediately before the pension scheme was
wound up.
(4)
The person, or each of the persons, liable to the scheme sanction charge is
assessable accordingly.
(5)
A person liable to the scheme sanction charge is liable whether or not—
5
(a)
that person, and
(b)
any other person who is liable to the scheme sanction charge,

are resident, ordinarily resident or domiciled in the United Kingdom.
(6)
The following sections make further provision about the scheme sanction
charge—
10

section 229 (amount of charge), and

section 230 (scheme chargeable payment).
229
Amount of charge
(1)
The scheme sanction charge for any tax year is a charge at the rate of 40% in
respect of the scheme chargeable payment, or the aggregate of the scheme
15
chargeable payments, made by the pension scheme in the tax year.
(2)
But if—
(a)
the scheme chargeable payment is an unauthorised payment, or any of
the scheme chargeable payments are unauthorised payments, and
(b)
tax charged in relation to that payment, or any of those payments,
20
under section 197 (unauthorised payments charge) has been paid,

a deduction is to be made from the amount of tax that would otherwise be
chargeable for the tax year by virtue of subsection (1).
(3)
The amount of the deduction is the lesser of—
(a)
25% of the amount of the scheme chargeable payment, or of the
25
aggregate amount of such of the scheme chargeable payments as are
tax-paid, and
(b)
the amount of the tax which has been paid under section 197 in relation
to the scheme chargeable payment, or in relation to such of the scheme
chargeable payments as are tax-paid.
30
(4)
A scheme chargeable payment is “tax-paid” if the whole or any part of the tax
chargeable in relation to it under section 197 has been paid.
230
Scheme chargeable payment
(1)
In this Part “scheme chargeable payment”, in relation to a registered pension
scheme, means—
35
(a)
an unauthorised payment by the pension scheme, other than one which
is exempt from being scheme chargeable, and
(b)
a scheme chargeable payment which the pension scheme is to be
treated as having made by section 172 or 174 (unauthorised
borrowing).
40
(2)
An unauthorised payment is exempt from being scheme chargeable if—
(a)
it is treated as having been made by section 162 (use of scheme assets to
provide benefits) and the asset used to provide the benefit in question
is not a wasting asset,

Finance Bill
Part 4 — Pension schemes etc
Chapter 6 — Employer-financed retirement benefits schemes
190

(b)
it is a compensation payment (see section 167),
(c)
it is made to comply with an order of a court or of a person or body with
power to order the making of the payment,
(d)
it is made on the ground that a court or any such person or body is
likely to order the making of the payment (or would be were it asked to
5
do so), or
(e)
it is of a description prescribed by regulations made by the Board of
Inland Revenue.
(3)
“Wasting asset” has the same meaning as in section 44 of TCGA 1992.
(4)
Schedule 34 contains (in Part 3) transitional provision about scheme chargeable
10
payments.
De-registration charge
231
De-registration charge
(1)
A charge to income tax, to be known as the de-registration charge, arises where
the registration of a registered pension scheme is withdrawn.
15
(2)
The liability to the de-registration charge is a liability of the person who was,
or each of the persons who were, the scheme administrator immediately before
the registration was withdrawn.
(3)
That person, or each of those persons, is liable to the de-registration charge
whether or not—
20
(a)
that person, and
(b)
any other person who is liable to the de-registration charge,

are resident, ordinarily resident or domiciled in the United Kingdom.
(4)
The de-registration charge is a charge at the rate of 40% in respect of the
aggregate of—
25
(a)
the amount of any sums held for the purposes of the pension scheme
immediately before it ceased to be a registered pension scheme, and
(b)
the market value at that time of any assets held for the purposes of the
pension scheme.
Chapter 6
30
Employer-financed retirement benefits schemes
Provision for benefits
232
Restriction of deduction for contributions by employer
(1)
Schedule 24 to the Finance Act 2003 (c. 14) (restriction of deductions for
employee benefit contributions) is amended as follows.
35
(2)
In paragraph 1(2)(b) (when employer makes “employee benefit contribution”),
after “benefits to” insert “or in respect of present or former”.
(3)
In sub-paragraph (1) of paragraph 2 (“qualifying benefits”), insert at the end

Finance Bill
Part 4 — Pension schemes etc
Chapter 6 — Employer-financed retirement benefits schemes
191

“or
(c)
is made under an employer-financed retirement benefits
scheme.”
(4)
In sub-paragraph (5) of that paragraph (when qualifying benefit treated as
provided), after “payment of money” insert “otherwise than under an
5
employer-financed retirement benefits scheme”.
(5)
In paragraph 8 (deductions to which Schedule does not apply), for paragraphs
(b) and (c) substitute—
“(b)
in respect of contributions under a registered pension scheme or
a section 615(3) scheme,”.
10
(6)
In sub-paragraph (1) of paragraph 9 (interpretation), in the definition of
“employee benefit scheme”, after “include,” insert “present or former”.
(7)
In that sub-paragraph, after the definition of “the employer” insert—

““employer-financed retirement benefits scheme” has the same meaning
as in Chapter 2 of Part 6 of the Income Tax (Earnings and Pensions)
15
Act 2003 (see section 393A of that Act);”.
(8)
In that sub-paragraph, after the definition of “qualifying expenses” insert—

““registered pension scheme” means a registered pension scheme within
the meaning of Part 4 of the Finance Act 2004 (see section 140 of that
Act);
20

“section 615(3) scheme” means a superannuation fund to which section
615(3) of the Taxes Act 1988 applies;”.
233
Restriction of deduction for non-contributory provision
(1)
This section applies in relation to an employer’s expenses of providing benefits
to or in respect of present or former employees under an employer-financed
25
retirement benefits scheme in a case where—
(a)
the expenses do not consist of the making of contributions under the
scheme, but
(b)
in accordance with generally accepted accounting practice they are
shown in the employer’s accounts.
30
(2)
Unless the benefits are ones in respect of which a person is, on receipt,
chargeable to income tax, the expenses—
(a)
are not deductible in computing the amount of the profits of the
employer for the purposes of Case I or II of Schedule D,
(b)
are not expenses of management of the employer for the purposes of
35
section 75 of ICTA (expenses of management: companies with
investment business), and
(c)
are not to be brought into account at Step 1 in section 76(5) of ICTA
(expenses of insurance companies) in respect of the employer.
(3)
But where the benefits are ones in respect of which a person is, on receipt,
40
chargeable to income tax—
(a)
if the expenses are allowed to be deducted in computing the amount of
the profits of the employer to be charged under Case I or II of Schedule
D, they are deductible in computing the amount of the profits for the
period of account in which they are paid, and
45

Finance Bill
Part 4 — Pension schemes etc
Chapter 6 — Employer-financed retirement benefits schemes
192

(b)
for the purposes of the operation of section 75 or 76 of ICTA in relation
to the employer, the expenses are referable to the accounting period in
which they are paid.
(4)
In this section “employer-financed retirement benefits scheme” has the same
meaning as in Chapter 2 of Part 6 of ITEPA 2003 (see section 393A of that Act).
5
Benefits
234
Abolition of income tax charge in respect of employer payments
In Part 6 of ITEPA 2003, omit Chapter 1 (payments by employer for the
provision of benefits for an employee under certain schemes to count as
employment income of employee).
10
235
Employer’s cost of insuring against non-payment of benefit
(1)
Section 307 of ITEPA 2003 (no liability to income tax in respect of chargeable
benefit on provision made by employer for a retirement or death benefit) is
amended as follows.
(2)
After subsection (1) insert—
15
“(1A)
Subsection (1) does not apply to provision made for insuring against
the risk that a retirement or death benefit under an employer-financed
retirement benefits scheme cannot be paid or given because of the
employer’s insolvency.
(1B)
In subsection (1A) “employer-financed retirement benefits scheme” has
20
the same meaning as in Chapter 2 of Part 6 (see section 393A).”
(3)
In subsection (2), for “subsection (1)” substitute “this section”.
236
Taxation of non-pension benefits
(1)
Chapter 2 of Part 6 of ITEPA 2003 (taxation of non-pension benefits from
certain pension schemes) is amended as follows.
25
(2)
In the heading of the Chapter, for “non-approved pension” substitute
“employer-financed retirement benefits”.
(3)
For section 393 substitute—
“393
Application of this Chapter
(1)
This Chapter applies to relevant benefits provided under an employer-
30
financed retirement benefits scheme.
(2)
Section 393A defines “employer-financed retirement benefits scheme”
and section 393B defines “relevant benefits”.
393A Employer-financed retirement benefits scheme
(1)
In this Chapter “employer-financed retirement benefits scheme” means
35
a scheme for the provision of benefits consisting of or including
relevant benefits to or in respect of employees or former employees of
an employer.

Finance Bill
Part 4 — Pension schemes etc
Chapter 6 — Employer-financed retirement benefits schemes
193

(2)
But neither—
(a)
a registered pension scheme, nor
(b)
a section 615(3) scheme,

is an employer-financed retirement benefits scheme.
(3)
“Section 615(3) scheme” means a superannuation fund to which section
5
615(3) of ICTA applies.
(4)
“Scheme” includes a deed, agreement, series of agreements, or other
arrangements.
393B Relevant benefits
(1)
In this Chapter “relevant benefits” means any lump sum, gratuity or
10
other benefit (including a non-cash benefit) provided (or to be
provided)—
(a)
on or in anticipation of the retirement of an employee or former
employee,
(b)
on the death of an employee or former employee,
15
(c)
after the retirement or death of an employee or former
employee in connection with past service,
(d)
on or in anticipation of, or in connection with, any change in the
nature of service of an employee, or
(e)
to any person by virtue of a pension sharing order or provision
20
relating to an employee or former employee.
(2)
But—
(a)
benefits charged to tax under Part 9 (pension income), and
(b)
excluded benefits,

are not relevant benefits.
25
(3)
The following are “excluded benefits”—
(a)
benefits in respect of ill-health or disablement of an employee
during service,
(b)
benefits in respect of the death by accident of an employee
during service,
30
(c)
benefits under a relevant life policy, and
(d)
benefits of any description prescribed by regulations made by
the Board of Inland Revenue.
(4)
In subsection (3)(c) “relevant life policy” means—
(a)
a group life policy as defined in section 539(3) of ICTA (life
35
policies excluded from charges on gains) with respect to which
the conditions in section 539A of that Act are met,
(b)
a policy of life insurance the terms of which provide for the
payment of benefits on the death of a single individual and with
respect to which condition 1 in that section would be met if it
40
referred to that individual (rather than each of the individuals
insured under the policy) and conditions 3, 4, 5 and 7 in that
section are met, or
(c)
a policy of life insurance that would be within paragraph (a) or
(b) but for the fact that it provides for a benefit which is an
45
excluded benefit under or by virtue of paragraph (a), (b) or (d)
of subsection (3).