Finance Bill

House of Commons

Session 2002 - 03
Internet Publications
Other Bills before Parliament

Finance Bill

Finance Bill
Part 4 — Pension schemes etc
Chapter 4 — Registered pension schemes: tax reliefs and exemptions
172

194
Spreading of relief: cessation of business
(1)
This section applies if—
(a)
the employer ceases to carry on business in the current chargeable
period or a later chargeable period in which section 193(4) would
require a fraction of the amount of the relevant excess contributions to
5
be treated as paid, and
(b)
were section 193(4) to apply, relief in relation to the whole of the
amount of the relevant excess contributions would not be given pre-
cessation.
(2)
Relief is given pre-cessation if it is given for the chargeable period in which the
10
employer ceases to carry on business or any earlier chargeable period.
(3)
The portion of the amount of the relevant excess contributions in relation to
which relief would not have been given pre-cessation (“the unrelieved
portion”) is be treated as paid (at the option of the employer) either—
(a)
in the chargeable period in which the employer ceases to carry on
15
business, or
(b)
as provided by subsection (4).
(4)
This subsection provides that the amount determined under subsection (5) is
to be treated as paid on each day in the period—
(a)
beginning with the current chargeable period, and
20
(b)
ending with the day on which the employer ceases to carry on business,

(“the relevant period”).
(5)
The amount referred to in subsection (4) is—
where—
UP is the amount of the unrelieved portion, and
25
DRP is the number of days in the relevant period.
(6)
Expressions used in this section and section 193 have the same meaning in this
section as in that section.
195
Deemed contributions
(1)
This section applies where a sum is paid to the trustees or managers of a
30
registered pension scheme by an employer in or towards the discharge of any
liability of the employer under—
(a)
section 75 of the Pensions Act 1995 (c. 26) (deficiencies in the assets of
a pension scheme), or
(b)
Article 75 of the Pensions (Northern Ireland) Order 1995 (S.I. 1995/3213
35
(N.I. 22)) (corresponding provision for Northern Ireland).
(2)
The making of the payment is to be treated for the purposes of—
(a)
Case I and II of Schedule D,
(b)
section 75 of ICTA (expenses of management: companies with
investment business), and
40
(c)
section 76 of ICTA (expenses of insurance companies),

as if it were the payment of a contribution by the employer under the pension
scheme.

Finance Bill
Part 4 — Pension schemes etc
Chapter 4 — Registered pension schemes: tax reliefs and exemptions
173

(3)
Subsections (4) and (5) apply if the employer’s trade, profession, vocation or
business is discontinued before the making of the payment.
(4)
The payment is to be relieved—
(a)
to the same extent as it would have been but for the discontinuance, and
(b)
as if it had been made on the last day on which the trade, profession,
5
vocation or business was carried on.
(5)
And for the purposes of section 76 of ICTA it is to be treated (to the extent that
it would not otherwise be) as part of expenses payable falling to be brought
into account at Step 1 in subsection (7) of that section.
196
No other relief for employers in connection with contributions
10
No sums other than contributions paid by an employer under a registered
pension scheme—
(a)
are deductible in computing the amount of the profits of the employer
for the purposes of Case I or II of Schedule D,
(b)
are expenses of management for the purposes of section 75 of ICTA
15
(expenses of management: companies with investment business), or
(c)
are to be brought into account at Step 1 in section 76(7) of ICTA
(expenses of insurance companies),
in connection with the cost of providing benefits under the pension scheme.
197
Relief for employees
20
(1)
In section 307(1) of ITEPA 2003 (exemption for provision made by employer for
retirement or death benefit), after “employer” insert “under a registered
pension scheme or otherwise”.
(2)
For section 308 of ITEPA 2003 (exemption of contributions to approved
personal pension arrangements) substitute—
25
“308
Exemption of contributions to registered pension scheme
No liability to income tax arises in respect of earnings where an
employee’s employer makes contributions under a registered pension
scheme.”
Inland Revenue contributions
30
198
Minimum contributions under pensions legislation
(1)
This section applies where under—
(a)
section 43 of the Pension Schemes Act 1993 (c. 48), or
(b)
section 39 of the Pension Schemes (Northern Ireland) Act 1993 (c. 49),

the Board of Inland Revenue pays minimum contributions for the purposes of
35
a registered pension scheme.
(2)
The amount of the minimum contributions is to be increased by the difference
between—
(a)
the amount of the employee’s share of the minimum contributions, and
(b)
the grossed-up equivalent of that amount.
40

Finance Bill
Part 4 — Pension schemes etc
Chapter 4 — Registered pension schemes: tax reliefs and exemptions
174

(3)
The amount of the employee’s share of the minimum contributions is the
amount that would be the amount of the minimum contributions if—
(a)
for the reference to the age-related percentage in section 45(1) of the
Pension Schemes Act 1993 (amount of minimum contributions) there
were substituted a reference to the percentage mentioned in section
5
41(1A) of that Act (percentage used to reduce primary Class 1
contribution), or
(b)
for the reference to the age-related percentage in section 41(1) of the
Pension Schemes (Northern Ireland) Act 1993 (c. 49) there were
substituted a reference to the percentage mentioned in section 37(1A)
10
of that Act (corresponding provisions for Northern Ireland).
(4)
The “grossed-up equivalent” of the amount of the employee’s share of the
minimum contributions is the sum which, after deduction of income tax at the
basic rate in force for the tax year for which the minimum contributions are
paid, is equal to that amount.
15
(5)
The Board of Inland Revenue may by regulations—
(a)
prescribe circumstances in which this section does not apply, or
(b)
make provision supplementing this section.
(6)
The Board of Inland Revenue must—
(a)
pay into the National Insurance Fund out of money provided by
20
Parliament the amount of any increase attributable to this section in the
sums paid out of that Fund under the Pension Schemes Act 1993 (c. 48),
and
(b)
pay into the Northern Ireland National Insurance Fund out of money
provided by Parliament the amount of any increase attributable to this
25
section in the sums paid out of that Fund under the Pension Schemes
(Northern Ireland) Act 1993.
Inheritance tax exemptions
199
Inheritance tax exemptions
(1)
The Inheritance Tax Act 1984 (c. 51) is amended as follows.
30
(2)
In section 12 (dispositions that are not transfers of value)—
(a)
in subsection (2), for the words following “if” substitute “it is a
contribution under a registered pension scheme or section 615(3)
scheme in respect of an employee of the person making the
disposition.”, and
35
(b)
omit subsections (3) and (4).
(3)
In section 58(1) (settled property in which no qualifying interest in possession
subsists but which is not “relevant property”), for paragraph (d) substitute—
“(d)
property which is held for the purposes of a registered pension
scheme or section 615(3) scheme;”.
40
(4)
In section 151 (treatment of pension rights etc.)—
(a)
omit subsections (1) and (1A),
(b)
in subsections (2), (4) and (5), for “fund or scheme to which this section
applies” substitute “registered pension scheme or section 615(3)
scheme”, and
45

Finance Bill
Part 4 — Pension schemes etc
Chapter 5 — Registered pension schemes: tax charges
175

(c)
in subsection (2)(b), for the “fund or scheme” (in both places) substitute
“scheme”.
(5)
In section 152 (cash options), for the words from the beginning to “or scheme”
substitute “Where on a person’s death an annuity becomes payable under a
registered pension scheme or section 615(3) scheme to a widow, widower or
5
dependant of that person and under the terms of the scheme”.
(6)
In section 272 (general interpretation), insert at the appropriate places—

““registered pension scheme” has the same meaning as in Part 4 of the
Finance Act 2004;”, and

““section 615(3) scheme” means a superannuation fund to which section
10
615(3)of the Taxes Act 1988 applies;”.
Chapter 5
Registered pension schemes: tax charges
Charges on authorised payments
200
Authorised pensions and lump sums
15
(1)
Schedule 31 contains provision about the taxation of pensions and lump sums
which are authorised to be paid by this Part.
(2)
Schedule 34 contains (in Part 4) transitional provision about the taxation of
annuities under existing retirement annuity contracts and other relevant
transitional provision.
20
201
Short service refund lump sum charge
(1)
A charge to income tax, to be known as the short service refund lump sum
charge, arises where a short service refund lump sum is paid by a registered
pension scheme.
(2)
The person liable to the short service refund lump sum charge is the scheme
25
administrator.
(3)
The scheme administrator is liable to the short service refund lump sum charge
whether or not—
(a)
the scheme administrator, and
(b)
the person to whom the short service refund lump sum is paid,
30

are resident, ordinarily resident or domiciled in the United Kingdom.
(4)
The rate of the charge is—
(a)
20% in respect of so much of the lump sum as does not exceed £10,800,
and
(b)
40% in respect of so much (if any) of it as exceeds that limit.
35
(5)
The Treasury may by order amend subsection (4) so as to—
(a)
increase or decrease either or both of the rates for the time being
specified in that subsection, or
(b)
increase the limit for the time being specified in paragraph (a) of that
subsection.
40

Finance Bill
Part 4 — Pension schemes etc
Chapter 5 — Registered pension schemes: tax charges
176

(6)
Tax under this section is to be charged on the amount of the lump sum paid or,
if the rules of the pension scheme permit the scheme administrator to deduct
the tax before payment, on the amount of the lump sum before deduction of
tax.
(7)
A short service refund lump sum is not to be treated as income for any purpose
5
of the Tax Acts.
202
Special lump sum death benefits charge
(1)
A charge to income tax, to be known as the special lump sum death benefits
charge, arises where—
(a)
a pension protection lump sum death benefit,
10
(b)
an annuity protection lump sum death benefit, or
(c)
an unsecured pension fund lump sum death benefit,

is paid by a registered pension scheme.
(2)
The person liable to the special lump sum death benefits charge is the scheme
administrator.
15
(3)
The scheme administrator is liable to the special lump sum death benefits
charge whether or not—
(a)
the scheme administrator, and
(b)
the person to whom the lump sum death benefit is paid,

are resident, ordinarily resident or domiciled in the United Kingdom.
20
(4)
The rate of the charge is 35% in respect of the lump sum death benefit.
(5)
The Treasury may by order increase or decrease the rate for the time being
specified in subsection (4).
(6)
Tax under this section is to be charged on the amount of the lump sum paid or,
if the rules of the pension scheme permit the scheme administrator to deduct
25
the tax before payment, on the amount of the lump sum before deduction of
tax.
(7)
No pension protection lump sum death benefit, annuity protection lump sum
death benefit or unsecured pension fund lump sum death benefit is to be
treated as income for any purpose of the Tax Acts.
30
203
Authorised surplus payments charge
(1)
A charge to income tax, to be known as the authorised surplus payments
charge, arises where an authorised surplus payment is made to a sponsoring
employer by an occupational pension scheme that is a registered pension
scheme.
35
(2)
The person liable to the authorised surplus payments charge is the scheme
administrator.
(3)
The scheme administrator is liable to the authorised surplus payments charge
whether or not—
(a)
the scheme administrator, and
40
(b)
the sponsoring employer,

are resident, ordinarily resident or domiciled in the United Kingdom.

Finance Bill
Part 4 — Pension schemes etc
Chapter 5 — Registered pension schemes: tax charges
177

(4)
The rate of the charge is 35% in respect of the authorised surplus payment.
(5)
The Treasury may by order increase or decrease the rate for the time being
specified in subsection (4).
(6)
Subsection (1) does not apply to any authorised surplus payment—
(a)
to the extent that (if this section had not been enacted) the sponsoring
5
employer would have been exempt, or entitled to claim exemption,
from income tax or corporation tax in respect of it, or
(b)
if the sponsoring employer is a charity.
(7)
An authorised surplus payment in respect of which income tax is charged
under this section is not to be treated as income for any purpose of the Tax Acts.
10
(8)
Schedule 34 contains (in Part 4) transitional provisions about the authorised
surplus payments charge.
Unauthorised payments charge
204
Unauthorised payments charge
(1)
A charge to income tax, to be known as the unauthorised payments charge,
15
arises where an unauthorised payment is made by a registered pension
scheme.
(2)
The person liable to the charge—
(a)
in the case of an unauthorised member payment made before the
member’s death, is the member to or in respect of whom the payment
20
is made,
(b)
in the case of an unauthorised member payment made after the
member’s death, is the recipient, and
(c)
in the case of an unauthorised employer payment, is the sponsoring
employer to or in respect of whom the payment is made.
25
(3)
If more than one person is liable to the unauthorised payments charge in
respect of an unauthorised payment, those persons are jointly and severally
liable to the charge in respect of the payment.
(4)
A person is liable to the unauthorised payments charge whether or not—
(a)
that person,
30
(b)
any other person who is liable to the unauthorised payments charge,
and
(c)
the scheme administrator,

are resident, ordinarily resident or domiciled in the United Kingdom.
(5)
The rate of the charge is 40% in respect of the unauthorised payment.
35
(6)
The Treasury may by order increase or decrease the rate for the time being
specified in subsection (5).
(7)
An unauthorised payment may also be subject to—
(a)
the unauthorised payments surcharge under section 205, and
(b)
the scheme sanction charge under section 235.
40
(8)
An unauthorised payment is not to be treated as income for any purpose of the
Tax Acts.