House of Commons portcullis
House of Commons
Session 2003 - 04
Internet Publications
Other Bills before Parliament

Finance Bill


Finance Bill
Schedule 32 — Registered pension schemes: benefit crystallisation events—supplementary

448

 

   

“winding-up lump sum”,

   

have the same meaning as in section 156 of FA 2004 (see Part 1 of

Schedule 29 to that Act).

636C    

Trivial commutation and winding-up lump sum death benefits

(1)   

This section applies if—

5

(a)   

a trivial commutation lump sum death benefit, or

(b)   

a winding-up lump sum death benefit,

   

is paid to a person under a registered pension scheme.

(2)   

The person 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

10

sum.

(3)   

In this section—

   

“trivial commutation lump sum death benefit”, and

   

“winding-up lump sum death benefit”,

   

have the same meaning as in section 158 of FA 2004 (see Part 2 of

15

Schedule 29 to that Act).”

12         

Omit Chapter 16 (lump sums).

13         

In section 644(2) (pensions to which section 580 or 590 applies not a

disablement pension), for “580 or 590” substitute “579A”.

14    (1)  

Section 683 of ITEPA 2003 (PAYE income) is amended as follows.

20

      (2)  

In subsection (3), for the entries relating to sections 581, 584, 591, 596, 599 and

602 substitute—

           

“section 579B (pension under registered pension scheme),”.

      (3)  

In that subsection, insert at the end—

           

“section 636B (pension treated as arising from payment of trivial

25

commutation lump sum or winding-up lump sum),

           

section 636C (pension treated as arising from payment of trivial

commutation or winding-up lump sum death benefit).”

      (4)  

Omit subsection (4).

15         

In Part 2 of Schedule 1 to ITEPA 2003 (index of defined expressions) insert at

30

the appropriate place—

 

“pension under a registered pension

section 579D”.

 
 

scheme (in Chapter 5A of Part 9)

  

Schedule 32

Section 205

 

Registered pension schemes: benefit crystallisation events—supplementary

35

General: meaning of “the relevant pension schemes”

1          

For the purposes of the benefit crystallisation events “the relevant pension

schemes” means the registered pension schemes of which the individual is a

 

 

Finance Bill
Schedule 32 — Registered pension schemes: benefit crystallisation events—supplementary

449

 

member (or, in the case of benefit crystallisation event 7, was a member

immediately before death).

Post-75 events not generally benefit crystallisation events

2          

The only sort of event that constitutes a benefit crystallisation event in

relation to the individual after the individual has reached the age of 75 is an

5

event that constitutes benefit crystallisation event 3.

Benefit crystallisation events 1, 2 and 4: prevention of overlap

3     (1)  

This paragraph applies for the purposes of benefit crystallisation event 2 if

the scheme pension is funded (in whole or in part) by the surrender of sums

or assets representing the whole or part of the individual’s unsecured

10

pension fund.

      (2)  

The amount crystallised by the event is to be reduced by the amount (or an

appropriate proportion of the amount) previously crystallised on the

designation of the sums or assets as available for the payment of unsecured

pension.

15

4     (1)  

This paragraph applies for the purposes of benefit crystallisation event 4 if

the lifetime annuity is purchased (in whole or in part) with sums or assets

representing the whole or part of the individual’s unsecured pension fund.

      (2)  

The amount crystallised by the event is to be reduced by the amount (or an

appropriate proportion of the amount) previously crystallised on the

20

designation of the sums or assets as available for the payment of unsecured

pension.

Benefit crystallisation events 1 and 5: hybrid arrangements

5     (1)  

This paragraph applies where—

(a)   

immediately before the individual reaches the age of 75, there is

25

under any of the relevant pension schemes a hybrid arrangement

relating to the individual, and

(b)   

the benefits that may be provided to or in respect of the individual

under the arrangement may, depending on the circumstances, be

money purchase benefits or defined benefits.

30

      (2)  

Benefit crystallisation event 1 applies as if, at that time, the circumstances are

such that the benefits to be provided are money purchase benefits (with the

effect that the sums or assets held for the purposes of the arrangement are to

be treated as having been designated as available for the provision of

unsecured pension to the individual).

35

      (3)  

Benefit crystallisation event 5 applies as if, at that time, the circumstances are

such that the benefits to be provided are defined benefits.

      (4)  

The amount crystallised is the greater of the amounts crystallised by the two

benefit crystallisation events.

Benefit crystallisation events 2, 3 and 5: meaning of “RVF” etc.

40

6          

For the purposes of benefit crystallisation events 2, 3 and 5 “RVF” is the

relevant valuation factor (see section 263).

 

 

Finance Bill
Schedule 32 — Registered pension schemes: benefit crystallisation events—supplementary

450

 

Benefit crystallisation events 2 and 4: early lifetime annuities

7     (1)  

This paragraph has effect if—

(a)   

the individual becomes entitled before reaching normal minimum

pension age to the payment of a lifetime annuity purchased under a

money purchase arrangement under any of the relevant pension

5

schemes, and

(b)   

the ill-health condition was not satisfied immediately before the

individual becomes so entitled.

      (2)  

Benefit crystallisation event 2 applies as if—

(a)   

the lifetime annuity were a scheme pension under the pension

10

scheme, and

(b)   

the individual becomes entitled to it only on reaching normal

minimum pension age.

      (3)  

Benefit crystallisation event 4 does not apply in relation to the lifetime

annuity.

15

Benefit crystallisation event 2: early pensions

8          

For the purposes of benefit crystallisation event 2 if—

(a)   

the individual becomes entitled to the pension before reaching

normal minimum pension age, and

(b)   

the ill-health condition was not satisfied immediately before the

20

individual becomes entitled to the pension,

           

the individual is to be treated as becoming entitled to it only on reaching

normal minimum pension age.

Benefit crystallisation event 2: meaning of “P”

9          

For the purposes of benefit crystallisation event 2 “P” is the amount of the

25

pension which will be payable to the individual in the period of 12 months

beginning with the day on which the individual becomes entitled to it

(assuming that it remains payable throughout that period at the rate at

which it is payable on that day).

Benefit crystallisation event 3: excepted circumstances

30

10         

For the purposes of benefit crystallisation event 3 “excepted circumstances”

means—

(a)   

that there are at least 50 pensioner members of the pension scheme

concerned, and

(b)   

that the increased rate applies to all the scheme pensions being paid

35

to all of the pensioner members under the pension scheme.

Benefit crystallisation event 3: rate at which pension last paid

11    (1)  

This paragraph applies for the purposes of benefit crystallisation event 3 if

the rate at which a pension was previously paid reflects any increase which

has taken effect during the period of 12 months ending with the day on

40

which the individual becomes entitled to payment of the pension at the new

rate.

 

 

Finance Bill
Schedule 32 — Registered pension schemes: benefit crystallisation events—supplementary

451

 

      (2)  

The rate at which the pension was previously paid is to be treated as being

that at which it would have been paid apart from the increase.

Benefit crystallisation event 3: permitted margin

12    (1)  

This paragraph applies for the purposes of benefit crystallisation event 3 if

the individual became entitled to the pension on or after 6th April 2006.

5

      (2)  

The permitted margin is the amount by which the annual amount of the

pension at its previous rate would be greater if it had been increased by

whichever of calculation A and calculation B gives the greater amount.

      (3)  

Calculation A involves increasing that annual amount at the relevant annual

percentage rate for the whole of the period—

10

(a)   

beginning with the month in which the pension was first payable at

the previous rate, and

(b)   

ending with the month in which the individual becomes entitled to

payment of the pension at the increased rate.

      (4)  

The relevant annual percentage rate is—

15

(a)   

in a case where the pension is paid under a pension scheme, or an

arrangement under a pension scheme, in relation to which the

relevant valuation factor is a number greater than 20, the annual rate

agreed by the Inland Revenue and the scheme administrator, and

(b)   

otherwise, 5% per annum.

20

      (5)  

Calculation B involves increasing that annual amount by the relevant

indexation percentage.

      (6)  

If the retail prices index for the month in which the individual becomes

entitled to payment of the pension at the increased rate is higher than it was

for the first month in which the pension was payable at the previous rate, the

25

relevant indexation percentage is the percentage increase in the retail prices

index.

      (7)  

If it is not, the relevant indexation percentage is 0%.

13    (1)  

This paragraph applies for the purposes of benefit crystallisation event 3 if

the individual became entitled to the pension before 6th April 2006.

30

      (2)  

The permitted margin is the greater of—

(a)   

what would be the permitted margin at that time if the individual

had become entitled to the pension on or after that date (see

paragraph 12), and

(b)   

the amount by which the annual amount of the pension at its

35

previous rate would be greater if it had been increased for the whole

of the period specified in sub-paragraph (3) of that paragraph at the

rate of P% per annum.

      (3)  

“P%” is the percentage by which, in accordance with the rules of the pension

scheme immediately before 6th April 2006, the annual rate of the pension is

40

to be increased each year.

Benefit crystallisation event 3: meaning of “XP”

14         

For the purposes of benefit crystallisation event 3 XP is the amount by which

the increased annual rate of the pension exceeds the previous annual rate as

increased by the permitted margin.

45

 

 

Finance Bill
Schedule 33 — Pension schemes etc: minor and consequential amendments

452

 

Benefit crystallisation event 5: meaning of “DP” and “DSLS”

15    (1)  

For the purposes of benefit crystallisation event 5 “DP” is the annual rate of

the scheme pension to which the individual would be entitled if, on the date

on which the individual reaches 75, the individual acquired an actual (rather

than a prospective) right to receive it.

5

      (2)  

For the purposes of benefit crystallisation event 5 “DSLS” is the amount of

any lump sum to which the individual would be entitled (otherwise than by

way of commutation of pension) if, on that date, the individual acquired an

actual (rather than a prospective) right to receive it.

Benefit crystallisation event 6: meaning of “relevant lump sum”

10

16         

For the purposes of benefit crystallisation event 6 a lump sum is a relevant

lump sum if it is—

(a)   

a pension commencement lump sum,

(b)   

a serious ill-health lump sum, or

(c)   

a lifetime allowance excess lump sum.

15

Benefit crystallisation event 7: meaning of “relevant lump sum death benefit”

17         

For the purposes of benefit crystallisation event 7 a lump sum death benefit

is a relevant lump sum death benefit if it is—

(a)   

a defined benefits lump sum death benefit, or

(b)   

an uncrystallised funds lump sum death benefit.

20

Schedule 33

Section 267

 

Pension schemes etc: minor and consequential amendments

Taxes Management Act 1970 (c. 9)

1          

In section 9(1A) of the Taxes Management Act 1970 (tax not to be assessed

by a self-assessment), for the words after “any tax” substitute “which—

25

(a)   

is chargeable on the scheme administrator of a registered

pension scheme under Part 4 of the Finance Act 2004, or

(b)   

is chargeable on person who is (or persons who are) the

responsible person in relation to an employer-financed

retirement benefits scheme under section 394(2) of ITEPA

30

2003.”

Income and Corporation Taxes Act 1988 (c. 1)

2          

The Income and Corporation Taxes Act 1988 (c. 1) is amended as follows.

3          

In section 21A(2) (Schedule A: computation of amount chargeable), insert at

the end—

35

           

“sections 185 to 189 of the Finance Act 2004 (registered pension

schemes);

           

section 233 of that Act (employer-financed retirement benefits

schemes).”

 

 

Finance Bill
Schedule 33 — Pension schemes etc: minor and consequential amendments

453

 

4          

In section 56(3)(b) (transfers in deposits and debts: exemption for pensions),

for “592(2), 613, 614(1) to (3) or 620(6)” substitute “613(4) or 614(2) or (3) or

section 175 of the Finance Act 2004”.

5          

In section 127(3)(a) (enterprise allowance), for “623(2)(c) or 833(4)(c)”

substitute “833(4)(c) or section 178(2)(b) of the Finance Act 2004”.

5

6          

In section 129B(2) (stock lending fees), for “sections 592(2), 608(2)(a), 613(4),

614(3), 620(6) and 643(2)” substitute “sections 613(4) and 614(3) and section

175 of the Finance Act 2004”.

7          

In section 227(8)(a) (purchase of own shares: rules about trustees not to

apply where shares held under exempt approved scheme), for “an exempt

10

approved scheme as defined in Chapter 1 of Part 14” substitute “a registered

pension scheme”.

8          

In section 265(3)(c) (transfer of blind person’s allowance to spouse where

allowance exceeds what is left of total income after deductions: deductions

to be disregarded), for “593(2) or 639(3)” substitute “181 of the Finance Act

15

2004”.

9          

In section 266(1) (life assurance premiums), for “sections 274 and 619(6) and

Schedules 14 and 15,” substitute “section 274 and Schedules 14 and 15 and

sections 181 to 183 of the Finance Act 2004,”.

10    (1)  

Section 266A (life assurance premiums paid by employer) is amended as

20

follows.

      (2)  

In subsection (1), for “a non-approved” substitute “an employer-financed”.

      (3)  

For subsections (3) to (6) substitute—

“(3)   

For the purposes of subsection (1)(a) benefits are provided in respect

of an employee if they are provided for the employee’s spouse,

25

widow or widower, children, dependants or personal

representatives.

(4)   

If a sum within subsection (1) is paid with a view to the provision of

benefits for or in respect of more than one employee of the employer,

part of it is to be treated as paid for or in respect of each of them.

30

(5)   

The amount treated as paid for or in respect of each employee is—equation: cross[char[A],over[char[B],char[C]]]

   

where—

   

A is the sum paid,

   

B is the amount which would have had to be paid to secure the

benefits to be provided for or in respect of the employee in

35

question, and

   

C is the total amount which would have had to be paid to secure

the benefits to be provided for or in respect of all the

employees if separate payments had been made in the case of

each of them.

40

(6)   

This section does not apply if—

(a)   

in the year of assessment in which the sum is paid the

earnings from the employee’s employment are (or, if there

 

 

Finance Bill
Schedule 33 — Pension schemes etc: minor and consequential amendments

454

 

are none, would be if there were any) earnings charged on

remittance, or

(b)   

the employee is not domiciled in the United Kingdom in the

tax year in which the sum is paid and the conditions in

subsection (7) are met.

5

(7)   

Those conditions are—

(a)   

that the employment is with a foreign employer, and

(b)   

that, on a claim made by the employee, the Board are satisfied

that the pension scheme corresponds to a registered pension

scheme.

10

(8)   

In subsection (6)(a) “earnings charged on remittance” means

earnings which are taxable earnings under—

(a)   

section 22 of ITEPA 2003 (chargeable overseas earnings for

year when employee resident and ordinarily resident, but not

domiciled, in UK), or

15

(b)   

section 26 of that Act (foreign earnings for year when

employee resident, but not ordinarily resident, in UK).

(9)   

In this section—

   

“employer-financed retirement benefits scheme”, and

   

“relevant benefits”,

20

   

have the same meaning as in Chapter 2 of Part 6 of ITEPA 2003 (see

sections 393A and 393B of that Act).”

11         

In section 268(7)(b) (early conversion or surrender of rights: life policies not

covered), for “an approved scheme, as defined in Chapter 1 of Part 14;”

substitute “a registered pension scheme;”.

25

12         

In section 273 (payments securing annuities), for “, 617(3) and 619(6)”

substitute “and 617(3) and sections 181 to 183 of the Finance Act 2004”.

13         

In section 336(1A)(b) (temporary residents not liable under certain pension

tax provisions)—

(a)   

in sub-paragraph (i), for “605, 609, 610, 611, 623 or 629 of that Act

30

applies,” substitute “609, 610, 611 or 629 of that Act applies,”,

(b)   

after that sub-paragraph insert—

“(ia)   

an annuity under an annuity contract that is a

registered pension scheme, or”, and

(c)   

omit sub-paragraph (iii) and the word “or” before it.

35

14         

In section 348(1A)(b) (payments out of profits or gains brought into charge

to income tax: exception for certain annuities), for “605 of that Act applies to

it (retirement annuity contracts: annuities),” substitute “579A of that Act

applies to it because it is annuity under an annuity contract that is a

registered pension scheme,”.

40

15         

In section 349(1A)(b) (payments not out of profits or gains brought into

charge to income tax and annual interest: exception for certain annuities), for

“605 of that Act applies to it,” substitute “579A of that Act applies to it

because it is an annuity under an annuity contract that is a registered

pension scheme,”.

45

16    (1)  

Section 349B(3) (payments in case of which requirement to deduct tax does

not apply) is amended as follows.

 

 

 
previous section contents continue
 
House of Commons home page Houses of Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 2004
Revised 6 April 2004