Finance Bill

House of Commons

Session 2003 - 04
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Finance Bill

Finance Bill
Schedule 30 — Registered pension schemes: employer loans
441

      (2)
But in the period of 12 months in which the loan repayment date falls, the
loan year ends on the loan repayment date (and that loan year is the last loan
year).
Required amount
4
“The required amount”, in relation to a period beginning with the date on
5
which the loan is made and ending with the last day of a loan year, is—

where—

L is the amount of the loan,

TIP is the total interest payable on the loan,

TLY is the total number of loan years, and
10

NLY is the number of loan years in the period.
Amount of unauthorised payment
Loan does not comply with section 168(1) when made
5     (1)
If a loan does not comply with section 168(1) (authorised employer loan)
when it is made, there is an unauthorised payment of an amount equal to the
15
largest of such of amounts 1, 2, A, B, and C as arise in relation to the loan.
      (2)
Paragraphs 12 to 16 explain amounts 1, 2, A, B and C.
Loan ceases to be secured by charge of adequate value
6
If at any time after a loan is made the loan ceases to be secured by a charge
of adequate value, there is an unauthorised payment equal to amount 2 (see
20
paragraph 13).
Further reduction in value of charge which is not of adequate value
7     (1)
If at any time after a loan is made—
(a)
the loan is secured by a charge which is not of adequate value, and
(b)
an event mentioned in sub-paragraph (2) occurs,
25

there is an unauthorised payment.
      (2)
The events are—
(a)
the loan ceasing to be secured by a charge,
(b)
a charge being given which does not comply with conditions A or C,
(c)
a reduction in the value of the assets charged which does not comply
30
with condition B, and
(d)
the charge ceasing to comply with condition C.
      (3)
The amount of the unauthorised payment is—

where—
AAE is amount 2 (see paragraph 13) calculated after the event, and
35
ABE is amount 2 (see paragraph 13) calculated before the event.
      (4)
Paragraph 1 defines conditions A, B and C.

Finance Bill
Schedule 30 — Registered pension schemes: employer loans
442

Loan ceases to comply with repayment terms
8     (1)
If at any time after a loan is made—
(a)
there is an alteration in the repayment terms, and
(b)
as a result the repayment terms cease to comply with one or more
paragraphs of section 168(2) (authorised repayment terms),
5

there is an unauthorised payment of an amount equal to the larger of such
of amounts A, B, and C (see paragraphs 14 to 16) as arise when that
paragraph or those paragraphs are not complied with.
Increase in extent to which loan does not comply with repayment terms
9     (1)
If at any time after a loan is made—
10
(a)
there is an alteration in the repayment terms, and
(b)
as a result the deterioration condition is met in relation to one or
more paragraphs of section 168(2) (authorised repayment terms)
which were not complied with before the alteration,

there is an unauthorised payment of an amount calculated in accordance
15
with sub-paragraphs (3) and (4).
      (2)
The deterioration condition is met in relation to a paragraph if—
      (3)
For each paragraph in relation to which the deterioration condition is met,
calculate—
      (4)
There is an unauthorised payment of an amount equal to the largest of the
20
amounts calculated under sub-paragraph (3).
      (5)
In this paragraph—
AAA, in relation to a paragraph of section 168(2) which was not
complied with before the alteration in the repayment terms, is the
amount arising when that paragraph is not complied with,
25
calculated after the alteration in the repayment terms, and
ABA, in relation to such a paragraph, is the amount arising when that
paragraph is not complied with, calculated before the alteration in
the repayment terms.
Prevention of double charging
30
10    (1)
This paragraph applies if on any date there is an unauthorised payment
under more than one of paragraphs 6 to 9.
      (2)
There is a single unauthorised payment.
      (3)
The amount of the unauthorised payment is an amount equal to the amount
of the greater or greatest of the unauthorised payments under those
35
paragraphs.
Total unauthorised payments not to exceed amount of loan
11
If the aggregate amount of the unauthorised payments in relation to a loan
under paragraphs 5 to 10 exceeds the amount of the loan when it was made,
the excess is to be treated as not being an unauthorised payment.
40

Finance Bill
Schedule 30 — Registered pension schemes: employer loans
443

Amount 1
12    (1)
Amount 1 arises if paragraph (a) of section 168(1) (amount of loan must not
exceed 50% of pension scheme assets) is not complied with.
      (2)
Amount 1 is—

where—
5
AL is the amount of the loan, and
VA is an amount equal to 50% of the aggregate of the amount of the
sums, and the market value of the assets, held for the purposes of
the pension scheme before the loan is made.
Amount 2
10
13    (1)
Amount 2 arises if paragraph (b) of section 168(1) (loan must be secured by
charge of adequate value) is not complied with.
      (2)
Amount 2 is—

where—
AO is the amount owing (including interest) at the relevant time, and
15
VA is the market value at that time of the assets charged but if the loan
is not secured by a charge, or is secured by a charge which does not
meet condition C (as defined in paragraph 1), is nil.
Amount A
14    (1)
Amount A arises if paragraph (a) of section 168(2) (interest rate to be not less
20
than prescribed amount) is not complied with.
      (2)
Amount A is—

where—
IR is the rate of interest payable at the relevant time,
PIR is the rate of interest rate prescribed by regulations under that
25
paragraph, and
AO is the amount owing (not including interest) at the relevant time.
Amount B
15    (1)
Amount B arises if paragraph (b) of section 168(2) (loan repayment date to
be within five years unless postponed) is not complied with.
30
      (2)
Amount B is—

Finance Bill
Schedule 31 — Taxation of benefits under registered pension schemes
444


where—
DLRP is the number of days in the period which begins with the date
on which the loan is made and ends with the loan repayment date,
DFY is the number of days in the period which begins with the date
on which the loan is made and ends five years after that date, and
5
AO is the amount owing (including interest) at the relevant time.
      (3)
But if the amount produced by the fraction in sub-paragraph (2) is greater
than 1, amount B is the amount owing (including interest) at the relevant
time.
      (4)
If the loan repayment date has been postponed under section 168(3), sub-
10
paragraph (2) applies as if references to the date on which the loan is made
were to the standard loan repayment date on which the loan repayment date
was postponed.
Amount C
16    (1)
Amount C arises if paragraph (c) of section 168(2) (amount payable for a
15
period to be not less than required amount) is not complied with and is
calculated as follows.
      (2)
In relation to each period beginning with the date on which the loan is made
and ending with the last day of a loan year, calculate—

where—
20
RA is the required amount in relation to that period, and
AP is the amount payable during that period.
      (3)
If an amount calculated under sub-paragraph (2) is negative, treat that
amount as nil.
      (4)
Amount C is the largest of the amounts calculated under sub-paragraph (2).
25
Schedule 31
Section 193

Taxation of benefits under registered pension schemes
1
Part 9 of ITEPA 2003 (pension income) is amended as follows.
2
In section 565 (structure of Part 9), for “Chapters 16 to 18 deal with”
substitute—
30

“Chapter 15A makes provision about exemptions and charges in
relation to lump sums under registered pension schemes;

Chapters 17 and 18 deal with other”.
3     (1)
Section 566(4) (nature of charge to tax on pension income) is amended as
follows.
35
      (2)
For the entries relation to sections 580, 583, 590, 595, 598, 601 and 605
substitute—

Finance Bill
Schedule 31 — Taxation of benefits under registered pension schemes
445

“Section 579A
Pensions under registered
Chapter 5A”

pension schemes

      (3)
Insert at the end—

“Section 636B
Pensions treated as arising from
Chapter 15A

payment of trivial commutation

5

lump sums and winding-up

lump sums under registered

pension schemes

Section 636C
Pensions treated as arising from
Chapter 15A”

payment of trivial commutation

10

lump sum death benefits and

winding-up lump sum death

benefits under registered pension

schemes

4
In section 567(4)(a) (amount charged to tax), for “15” substitute “15A”.
15
5
In section 568 (person liable to tax), for “15” substitute “15A”.
6
After Chapter 5 insert—
“Chapter 5A
Pensions under registered pension schemes
579A
Pensions
20
(1)
This section applies to any pension under a registered pension
scheme (but subject to subsection (2)).
(2)
This section does not apply to a pension under a registered pension
scheme if and to the extent that, when it is paid, a liability to the
unauthorised payments charge arises in respect of the amount of the
25
payment (see section 197 of FA 2004).
579B
Taxable pension income
If section 579A applies, the taxable pension income for a tax year is
the full amount of the pension under the registered pension scheme
that accrues in that year irrespective of when any amount is actually
30
paid.
579C
Person liable for tax
If section 579A applies, the person liable for any tax charged under
this Part is the person receiving or entitled to the pension under the
registered pension scheme.
35
579D
Interpretation
In this Chapter “pension under a registered pension scheme”
includes—

Finance Bill
Schedule 31 — Taxation of benefits under registered pension schemes
446

(a)
an annuity under, or purchased with sums or assets held for
the purposes of, or representing acquired rights under, a
registered pension scheme, and
(b)
income withdrawal or dependants’ income withdrawal
under a registered pension scheme.
5
In paragraph (b) “income withdrawal” and “dependants’ income
withdrawal” have the meaning given by paragraphs 7 and 21 of
Schedule 28 to FA 2004.”
7
Omit Chapters 6, 7, 8 and 9 (pensions under approved schemes).
8     (1)
Section 610 (annuities under sponsored superannuation schemes) is
10
amended as follows.
      (2)
In subsection (1)—
(a)
in paragraph (a), for “a sponsored superannuation scheme”
substitute “an occupational pension scheme that is not a registered
pension scheme”, and
15
(b)
in paragraph (b), for “a sponsored superannuation scheme”
substitute “such an occupational pension scheme”.
      (3)
In subsection (3), for “any provision of Chapter 6, 7, 8 or 9” substitute
“Chapter 5A”.
      (4)
For subsection (4) substitute—
20
“(4)
In this section “occupational pension scheme” has the same meaning
as in Part 4 of FA 2004 (see section 140(5) of that Act).”
      (5)
In the heading, for “sponsored superannuation” substitute “non-registered
occupational pension”.
9
In section 611(3) (annuities in recognition of another’s service), for “any
25
provision of Chapter 6, 7, 8 or 9” substitute “Chapter 5A”.
10
Omit Chapter 13 (return of surplus additional voluntary contributions
under exempt approved schemes and relevant statutory schemes).
11
After Chapter 15 insert—
“Chapter 15A
30
Lump sums under registered pension schemes
636A
Exemption for certain lump sums under registered pension schemes
(1)
No liability to income tax arises on a lump sum paid under a
registered pension scheme if the lump sum is—
(a)
a pension commencement lump sum,
35
(b)
a serious ill-health lump sum,
(c)
a refund of excess contributions lump sum,
(d)
a defined benefits lump sum death benefit,
(e)
an uncrystallised funds lump sum death benefit, or
(f)
a transfer lump sum death benefit.
40
(2)
But subsection (1) does not limit the operation of sections 203 to 215
of FA 2004 (lifetime allowance charge).

Finance Bill
Schedule 31 — Taxation of benefits under registered pension schemes
447

(3)
A short service refund lump sum under a registered pension scheme
is subject to income tax in accordance with section 194 of FA 2004
(charge to tax on scheme administrator in respect of such a lump
sum) but not otherwise.
(4)
A lump sum under a registered pension scheme which is—
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 subject to income tax in accordance with section 195 of FA 2004
(charge to tax on scheme administrator in respect of such lump sum
10
death benefits) but not otherwise.
(5)
A lifetime allowance excess lump sum is chargeable to income tax in
accordance with sections 203 to 215 of FA 2004 (lifetime allowance
charge) but not otherwise.
(6)
In this section—
15

“lifetime allowance excess lump sum”,

“pension commencement lump sum”,

“refund of excess contributions lump sum”,

“serious ill-health lump sum”, and

“short service refund lump sum”,
20

have the same meaning as in section 156 of FA 2004 (see Part 1 of
Schedule 29 to that Act).
(7)
In this section—

“annuity protection lump sum death benefit”,

“defined benefits lump sum death benefit”,
25

“pension protection lump sum death benefit”,

“transfer lump sum death benefit”,

“uncrystallised funds lump sum death benefit”, and

“unsecured pension fund lump sum death benefit”,

have the same meaning as in section 158 of FA 2004 (see Part 2 of
30
Schedule 29 to that Act).
636B
Trivial commutation and winding-up lump sums
(1)
This section applies if—
(a)
a trivial commutation lump sum, or
(b)
a winding-up lump sum,
35

is paid to a member of a registered pension scheme under the pension
scheme.
(2)
The member is to be treated as having taxable pension income for the
tax year in which the payment is made equal to the amount of the lump
sum.
40
(3)
But if, immediately before the lump sum is paid, the member has not
become entitled to any benefits under the pension scheme, the amount
of the taxable pension income is 75% of the amount of the lump sum.
(4)
In this section—

“trivial commutation lump sum”, and
45