Finance Bill

House of Commons

Session 2003 - 04
Internet Publications
Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 34 — Pension schemes etc: transitional provisions and savings
Part 4 — Other provisions
483

(b)
deductible under section 75 of ICTA (expenses of management:
companies with investment business), or
(c)
brought into account at Step 1 in section 76(5) of ICTA (expenses of
insurance companies),

for a period beginning before 6th April 2006, it is not allowed to be so
5
deducted, so deductible, or available to be so brought into account for that
or any other period in accordance with section 185 (relief for employers in
respect of contributions paid).
Spreading of employer’s contributions
40
The power of the Board of Inland Revenue under section 592(6) of ICTA to
10
direct that a sum paid under an exempt approved scheme otherwise than by
way of ordinary annual contribution be treated as an expense to be spread
over such period of years as the Board think fit continues to apply in relation
to sums paid before 6th April 2006.
Taxation of annuities paid under pre-commencement retirement annuity contracts
15
41    (1)
Chapter 9 of Part 9 of ITEPA 2003 (taxation of annuities paid under pre-
commencement retirement annuity contracts) continues to have effect until
such date as the Treasury may by order appoint.
      (2)
Chapter 5A of that Part (as inserted by Schedule 31) does not have effect in
relation to any annuity to which Chapter 9 continues to apply by virtue of
20
sub-paragraph (1).
      (3)
Section 683 of ITEPA 2003 (PAYE income) has effect accordingly.
      (4)
An order under sub-paragraph (1) may include any appropriate transitional
provision.
Taxation of pensions accruing (but not taxed) pre-commencement and paid or received post-
25
commencement
42    (1)
If an amount which accrued but was not paid before 6th April 2006 would
have constituted taxable pension income under Chapter 7 of Part 9 of ITEPA
2003 (former approved superannuation fund annuities) had it been paid
before that date, it is to be treated for the purposes of Chapter 5A of Part 9 of
30
ITEPA 2003 (as inserted by Schedule 31) as if it accrues when it is paid.
      (2)
If an amount which accrued but was not received before 6th April 2006
would have constituted taxable pension income under section 596 of ITEPA
2003 (personal pension annuities) had it been received before that date, it is
to be treated for the purposes of Chapter 5A of Part 9 of ITEPA 2003 (as
35
inserted by Schedule 31) as if it accrues when it is received.
Pensions taxed pre-commencement but accruing post-commencement
43    (1)
If an amount which was paid but had not accrued before 6th April 2006
constituted taxable pension income under Chapter 7 of Part 9 of ITEPA 2003
(former approved superannuation fund annuities), it does not also
40
constitute taxable pension income under Chapter 5A of Part 9 of ITEPA 2003
(as inserted by Schedule 31) when it accrues.
      (2)
If an amount which was received but had not accrued before 6th April 2006
constituted taxable pension income under section 596 of ITEPA 2003
(personal pension annuities), it does not also constitute taxable pension
45

Finance Bill
Schedule 34 — Pension schemes etc: transitional provisions and savings
Part 4 — Other provisions
484

income under Chapter 5A of Part 9 of ITEPA 2003 (as inserted by Schedule
31) when it accrues.
Authorised surplus payments charge: pre-19th March 1986 winding-up
44
Section 196 (authorised surplus payments charge) does not apply to any
payment made in pursuance of the winding-up of a pension scheme if the
5
winding-up commenced before 19th March 1986.
Annual allowance charge: post-commencement contributions to discharge pre-commencement
unfunded promises
45    (1)
This paragraph applies where, during the period beginning with 6th April
2006 and ending with 7th July 2006, an employer of an individual makes a
10
relevant consolidation contribution in respect of the individual under an
arrangement under a registered pension scheme relating to the individual.
      (2)
The pension input amount in respect of the arrangement during the pension
input period of the arrangement ending in the tax year 2006-07 is to be
reduced by the amount of the contribution.
15
      (3)
“Relevant consolidation contribution” means a contribution made by way of
discharge of any liability incurred by the employer before 6th April 2006 to
pay any pension or lump sum to or in respect of the individual.
Annual allowance charge: enhanced protection
46    (1)
This paragraph applies if notice of intention to rely on paragraph 12
20
(enhanced protection: no relevant benefit accrual post-commencement) is
given to the Inland Revenue in accordance with regulations under that
paragraph in the case of an individual.
      (2)
Sections 216 to 227 (annual allowance charge) do not apply in relation to the
individual for any tax year if that paragraph applies in relation to the
25
individual throughout the tax year.
Saving of sections 605 and 651A of ICTA
47
The repeal by this Act of sections 605 and 651A of ICTA (information
powers) does not affect the operation of those sections, or regulations under
them, in relation to times before 6th April 2006.
30
Continuing operation of section 392 of ITEPA 2003
48
Section 392 of ITEPA 2003 (non-approved schemes: relief where no benefits
are paid or payable) continues to have effect in relation to a sum charged to
tax by virtue of section 386 of ITEPA 2003, or section 595 of ICTA, (charges
on payments to schemes) before 6th April 2006.
35
Benefits taxable under Chapter 2 of Part 6 of ITEPA 2003: contributions taxed pre-
commencement
49    (1)
Paragraphs 50 to 52 have effect where—
(a)
section 394 of ITEPA 2003 (charge on benefits from non-approved
schemes) operates (or would otherwise operate) by reason of the
40
provision of a lump sum under an employer-financed retirement
benefits scheme on or after 6th April 2006, and

Finance Bill
Schedule 34 — Pension schemes etc: transitional provisions and savings
Part 4 — Other provisions
485

(b)
before that date an employer has paid any sum or sums, with a view
to the provision of benefits under the scheme, in respect to which an
employee has been taxed.
      (2)
For the purposes of sub-paragraph (1)(a) section 394 of ITEPA 2003 operates
if—
5
(a)
an amount counts as employment income of an individual under
that section, or
(b)
the person who is, or persons who are, the responsible person in
relation to the scheme would be chargeable to tax under Case VI of
Schedule D by virtue of that section.
10
      (3)
For the purposes of sub-paragraph (1)(b) an employee has been taxed in
respect of a sum or sums if—
(a)
the employee has been assessed to tax by virtue of section 595(1) of
ICTA (charges on payments) in respect of the sum or sums, or
(b)
the sum or sums have counted as employment income of the
15
employee under section 386(1) of ITEPA 2003 (charges on payments).
      (4)
It is to be assumed, unless the contrary is shown, that none of paragraphs 50
to 52 apply.
50    (1)
This paragraph applies if—
(a)
all of the income and gains accruing to the scheme are brought into
20
charge to tax, and
(b)
the lump sum is provided to the employee, a relative of the
employee, the personal representatives of the employee, an ex-
spouse of the employee or any other individual designated by the
employee.
25
      (2)
In a case where the employer has not paid any sum or sums with a view to
the provision of benefits under the scheme since before 6th April 2006,
section 394 of ITEPA 2003 does not apply in relation to the lump sum.
      (3)
In a case where the employer has paid any sum or sums with a view to the
provision of benefits under the scheme on or after 6th April 2006—
30
(a)
section 394 of ITEPA 2003 does not apply in relation to so much of
the lump sum as does not exceed the amount of the market value of
the assets of the scheme on 5th April 2006 as increased under sub-
paragraph (4), and
(b)
only any sum or sums paid by the employee after that date with a
35
view to the provision of benefits under the scheme are to be taken
into account under section 395 of ITEPA 2003 (general rules).
      (4)
The amount referred to in sub-paragraph (3)(a) is to be increased by the
percentage by which the retail prices index for the month in which the lump
sum is provided is greater than that for April 2006.
40
      (5)
In this paragraph—

“ex-spouse”, in relation to an employee, means the other party to a
marriage with the employee that has been dissolved or annulled,
and
“relative”, in relation to an employee, means—
45
(a)
the wife or husband of the employee,
(b)
the widow or widower of the employee,
(c)
a child of the employee, or
(d)
a dependant of the employee.

Finance Bill
Schedule 34 — Pension schemes etc: transitional provisions and savings
Part 4 — Other provisions
486

51    (1)
This paragraph applies if any of the income and gains accruing to the
scheme is not brought into charge to tax.
      (2)
Section 394 of ITEPA 2003 (charge on benefits from non-approved schemes)
does not apply in relation to so much of the lump sum as does not exceed the
sum, or the aggregate of the sums, referred to in paragraph 49(1)(b).
5
      (3)
And the reference in section 395 of that Act (general rules) to the amount of
the lump sum is to the amount of the remainder of the lump sum.
52    (1)
This paragraph applies if the scheme—
(a)
was entered into before 1st September 1993, and
(b)
has not been varied on or after that date with a view to the provision
10
of the benefit.
      (2)
Section 394 of ITEPA 2003 (charge on benefits from non-approved schemes)
does not apply in relation to the lump sum.
Inheritance tax
53    (1)
This paragraph applies in relation to a fund or scheme—
15
(a)
which is not a registered pension scheme or a superannuation fund
to which section 615(3) of ICTA applies, but
(b)
to which section 151 of the Inheritance Tax Act 1984 (c. 51) (treatment
of pension rights) applied immediately before 6th April 2006.
      (2)
If no contributions are made under the fund or scheme on or after that date,
20
section 151 of the Inheritance Tax Act 1984 (c. 51) continues to apply to the
fund or scheme on and after that date for all purposes of that Act.
      (3)
In any other case, paragraphs 54 and 55 apply to the fund or scheme on and
after that date.
54    (1)
The proportion of the assets of the fund or scheme which at any time is the
25
protected proportion of those assets does not at that time constitute relevant
property for the purposes of Chapter 3 of Part 3 of the Inheritance Tax Act
1984 (settlements without interest in possession).
      (2)
“The protected proportion” of the assets of the fund or scheme at a time is—

where—
30

V is the market value of the assets of the fund or scheme at that time,
and

ACV is the adjusted commencement value, that is an amount equal to
the market value of the assets of the fund or scheme on 5th April
2006, but subject to the adjustments provided by sub-paragraph (3).
35
      (3)
The adjustments are—
(a)
an increase by the percentage by which the retail prices index for the
month of September immediately preceding the time in question is
greater than that for April 2006, and
(b)
a reduction by the amount of any relevant payments made under the
40
fund or scheme on or after 6th April 2006 and before that time.
      (4)
“Relevant payments” are payments other than—
(a)
payments of costs or expenses, or
(b)
payments which are (or will be) income of any person for any of the
purposes of income tax.
45

Finance Bill
Schedule 34 — Pension schemes etc: transitional provisions and savings
Part 4 — Other provisions
487

55    (1)
Section 151 of the Inheritance Tax Act 1984 (treatment of pension rights)
continues to apply to so much of the assets of the fund or scheme at any time
as does not exceed the amount that is the protected amount at that time.
      (2)
But sub-paragraph (1) does not affect the operation of subsection (1)(d) of
section 58 of that Act (because paragraph 54 makes provision about the
5
extent to which the assets of the fund or scheme constitute relevant property
within the meaning given by that section).
      (3)
If inheritance tax has not previously been chargeable (otherwise than only
because of this paragraph) by reference to the value of the assets of the fund
or scheme on or after 6th April 2006, the protected amount is an amount
10
equal to the amount of the market value of the assets of the fund or scheme
on 5th April 2006, but subject to the adjustments provided by sub-paragraph
(4).
      (4)
The adjustments are—
(a)
an increase by the percentage by which the retail prices index for the
15
month of September immediately preceding the time in question is
greater than that for April 2006, and
(b)
a reduction by the amount of any relevant payments made under the
fund or scheme on or after 6th April 2006 and before that time.
      (5)
If inheritance tax would (apart from this paragraph) have previously been
20
chargeable by reference to the value of the assets of the fund or scheme on
one or more occasions on or after 6th April 2006, the protected amount is
what it was immediately before the occasion, or (where there has been more
than one) the last occasion, on which inheritance tax would have been so
chargeable (“the relevant tax occasion”), but—
25
(a)
reduced by the value of the property on which inheritance tax would
have been chargeable on the relevant tax occasion, and
(b)
subject to the adjustments provided by sub-paragraph (6).
      (6)
The adjustments are —
(a)
an increase by the percentage by which the retail prices index for the
30
month of September immediately preceding the time in question is
greater than that for the month in which the relevant tax occasion
fell, and
(b)
a reduction by the amount of any payments made under the fund or
scheme since the relevant tax occasion.
35
      (7)
“Relevant payments” are payments other than—
(a)
payments of costs or expenses, or
(b)
payments which are (or will be) income of any person for any of the
purposes of income tax.