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

178

 

205     

Unauthorised payments surcharge

(1)   

A charge to income tax, to be known as the unauthorised payments surcharge,

arises where a surchargeable unauthorised payment is made by a registered

pension scheme.

(2)   

“Surchargeable unauthorised payments” means—

5

(a)   

surchargeable unauthorised member payments (see section 206), and

(b)   

surchargeable unauthorised employer payments (see section 209).

(3)   

The person liable to the charge—

(a)   

in the case of a surchargeable unauthorised member payment made

before the member’s death, is the member in respect of whose

10

arrangement the payment was made,

(b)   

in the case of a surchargeable unauthorised member payment made

after the member’s death, is the recipient, and

(c)   

in the case of a surchargeable unauthorised employer payment, is the

sponsoring employer to or in respect of whom the payment was made.

15

(4)   

If more than one person is liable to the unauthorised payments surcharge in

respect of a surchargeable unauthorised payment, those persons are jointly

and severally liable to the surcharge in respect of the payment.

(5)   

A person is liable to the unauthorised payments surcharge whether or not—

(a)   

that person,

20

(b)   

any other person who is liable to the unauthorised payments

surcharge, and

(c)   

the scheme administrator,

   

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

(6)   

The rate of the charge is 15% in respect of the surchargeable unauthorised

25

payment.

(7)   

The Treasury may by order increase or decrease the rate for the time being

specified in subsection (6).

206     

Surchargeable unauthorised member payments

(1)   

This section identifies which unauthorised member payments made by a

30

registered pension scheme in respect of an arrangement relating to a member

under the pension scheme are surchargeable.

(2)   

If the surcharge threshold is reached before the end of the period of 12 months

beginning with a reference date, each unauthorised member payment made in

respect of the arrangement in the surcharge period is surchargeable.

35

(3)   

The surcharge period is the period—

(a)   

beginning with the reference date, and

(b)   

ending with the day on which the surcharge threshold is reached.

(4)   

The first reference date is the date on which the pension scheme first makes an

unauthorised member payment in respect of the arrangement.

40

(5)   

Each subsequent reference date is the date, after the end of the previous

reference period, on which the pension scheme next makes an unauthorised

member payment in respect of the arrangement.

 

 

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

179

 

(6)   

The previous reference period is the period of 12 months beginning with the

previous reference date or, if the surcharge threshold is reached in that period,

is the surcharge period ending with the date on which it was reached.

(7)   

The surcharge threshold is reached if the unauthorised payments percentage

reaches 25%.

5

(8)   

The unauthorised payments percentage is the aggregate of the percentages of

the pension fund used up by each unauthorised member payment made by the

pension scheme in respect of the arrangement on or after the reference date.

(9)   

The percentage of the pension fund used up on the occasion of an unauthorised

member payment is—equation: cross[over[times[char[U],char[M],char[P]],times[char[V],char[R]]],num[100.00000000,

"100"]]

10

   

where—

   

UMP is the amount of the unauthorised member payment, and

   

VR is an amount equal to the value of the member’s rights under the

arrangement when the unauthorised payment is made (or, if the

unauthorised payment is made after the member’s death, at the date of

15

the member’s death).

(10)   

The value of the member’s rights under the arrangement on that date is the

aggregate of—

(a)   

the value of the member’s crystallised rights under the arrangement on

that date, calculated in accordance with section 207, and

20

(b)   

the value of the member’s uncrystallised rights under the arrangement

on that date, calculated in accordance with section 208.

207     

Valuation of crystallised rights for purposes of section 206

(1)   

The value of the member’s crystallised rights under the arrangement on any

date is the aggregate of—

25

(a)   

the value of each scheme pension or lifetime annuity to which the

member has an actual (rather than a prospective) entitlement under the

arrangement on that date, and

(b)   

the aggregate of the amount of the sums, and the market value of the

assets, representing the member’s unsecured pension fund or

30

alternatively secured pension fund in respect of the arrangement on

that date (if any).

(2)   

The value of a scheme pension or lifetime annuity is—equation: cross[times[char[R],char[V],char[F]],times[char[A],char[R],char[P]]]

   

where—

   

RVF is the relevant valuation factor (see section 270), and

35

   

ARP is an amount equal to the annual rate of the pension or annuity on

the date.

208     

Valuation of uncrystallised rights for purposes of section 206

(1)   

Rights are uncrystallised if the member is not entitled to the present payment

of benefits in respect of the rights.

40

 

 

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

180

 

(2)   

The member is to be treated as entitled to the present payment of benefits in

respect of the sums and assets representing the member’s unsecured pension

fund or alternatively secured pension fund.

(3)   

The value of the member’s uncrystallised rights under the arrangement on any

date is to be calculated—

5

(a)   

in accordance with subsection (4) if the arrangement is a cash balance

arrangement,

(b)   

in accordance with subsection (5) if the arrangement is a money

purchase arrangement other than a cash balance arrangement,

(c)   

in accordance with subsection (6) if the arrangement is a defined

10

benefits arrangement, and

(d)   

in accordance with subsection (7) if the arrangement is a hybrid

arrangement.

(4)   

If this subsection applies, the value of the member’s uncrystallised rights

under the arrangement on the date is the amount which would, on the

15

valuation assumptions (see section 271), be available for the provision of

benefits in respect of those rights if the member became entitled to benefits in

respect of those rights on the date.

(5)   

If this subsection applies, the value of the member’s uncrystallised rights

under the arrangement on the date is the aggregate of—

20

(a)   

the amount of such of the sums held for the purposes of the

arrangement on the date as represent those rights, and

(b)   

the market value of such of the assets held for the purposes of the

arrangement on the date as represent those rights.

(6)   

If this subsection applies, the value of the member’s uncrystallised rights

25

under the arrangement on the date is—equation: plus[id[cross[times[char[R],char[V],char[F]],times[char[A],char[R],char[P]]]],times[

char[L],char[S]]]

   

where—

   

RVF is the relevant valuation factor (see section 270),

   

ARP is the annual rate of pension to which the member would, on the

valuation assumptions, be entitled under the arrangement on the date

30

if, on the date, the member acquired an actual (rather than a

prospective) right to receive a pension in respect of the rights, and

   

LS is the amount of any lump sum to which the member would, on the

valuation assumptions, be entitled under the arrangement on the date

(otherwise than by way of commutation of pension) if, on the date, the

35

member acquired an actual (rather than a prospective) right to payment

of a lump sum in respect of the rights.

(7)   

If this subsection applies, the value of the member’s uncrystallised rights

under the arrangement on the date is—

(a)   

if each of subsections (4), (5) and (6) is relevant, the greatest of the

40

values of the rights calculated in accordance with each of those

subsections, or

(b)   

if only two of those subsections are relevant, the greater of the values of

the rights calculated in accordance with each of the two subsections.

(8)   

Subsection (4) is relevant if, in any circumstances, cash balance benefits may be

45

provided to or in respect of the member under the arrangement.

 

 

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

181

 

(9)   

Subsection (5) is relevant if, in any circumstances, money purchase benefits

other than cash balance benefits may be provided to or in respect of the

member under the arrangement.

(10)   

Subsection (6) is relevant if, in any circumstances, defined benefits may be

provided to or in respect of the member under the arrangement.

5

209     

Surchargeable unauthorised employer payments

(1)   

This section identifies which unauthorised employer payments made by a

registered pension scheme to or in respect of a sponsoring employer are

surchargeable.

(2)   

If the surcharge threshold is reached before the end of the period of 12 months

10

beginning with a reference date, each unauthorised employer payment made

to or in respect of the employer in the surcharge period is surchargeable.

(3)   

The surcharge period is the period—

(a)   

beginning with the reference date, and

(b)   

ending with the day on which the surcharge threshold is reached.

15

(4)   

The first reference date is the date on which the pension scheme first makes an

unauthorised employer payment to or in respect of the employer.

(5)   

Each subsequent reference date is the date, after the end of the previous

reference period, on which the pension scheme next makes an unauthorised

employer payment to or in respect of the employer.

20

(6)   

The previous reference period is the period of 12 months beginning with the

previous reference date or, if the surcharge threshold is reached in that period,

is the surcharge period ending with the date on which it was reached.

(7)   

The surcharge threshold is reached if the unauthorised payments percentage

reaches 25%.

25

(8)   

The unauthorised payments percentage is the aggregate of the percentages of

the pension fund used up by each unauthorised employer payment made by

the pension scheme to or in respect of the employer on or after the reference

date.

(9)   

The percentage of the pension fund used up on the occasion of an unauthorised

30

employer payment is—equation: cross[over[times[char[U],char[E],char[P]],times[char[A],char[A]]],num[100.00000000,

"100"]]

   

where—

   

UEP is the amount of the unauthorised employer payment, and

   

AA is an amount equal to the aggregate of the amount of the sums and the

market value of the assets held for the purposes of the pension scheme

35

at the time when the unauthorised employer payment is made.

Lifetime allowance charge

210     

Lifetime allowance charge

(1)   

A charge to income tax, to be known as the lifetime allowance charge, arises

where—

40

 

 

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

182

 

(a)   

a benefit crystallisation event occurs in relation to an individual who is

a member of one or more registered pension schemes, and

(b)   

either the first lifetime allowance charge condition or the second

lifetime allowance charge condition is met.

(2)   

The first lifetime allowance charge condition is that—

5

(a)   

the whole or any part of the individual’s lifetime allowance is available

on the benefit crystallisation event, but

(b)   

the amount crystallised by the benefit crystallisation event exceeds the

amount of the individual’s lifetime allowance which is available on the

benefit crystallisation event.

10

(3)   

The second lifetime allowance charge condition is that none of the individual’s

lifetime allowance is available on the benefit crystallisation event.

(4)   

The following sections make further provision about the lifetime allowance

charge—

   

section 211 (amount of charge),

15

   

section 212 and Schedule 32 (benefit crystallisation events and amounts

crystallised),

   

section 213 (persons liable to charge),

   

section 214 (individual’s lifetime allowance and standard lifetime

allowance),

20

   

section 215 (availability of individual’s lifetime allowance), and

   

sections 216 to 222 (lifetime allowance enhancement factors).

(5)   

In sections 211 to 215

(a)   

references to “the individual”, in relation to the lifetime allowance

charge, are to the individual in relation to whom the benefit

25

crystallisation event giving rise to the charge occurs, and

(b)   

references to “the pension scheme”, in relation to the lifetime allowance

charge, are to the pension scheme to which the benefit crystallisation

event giving rise to the charge, or the amount crystallised by it, relates.

(6)   

Schedule 34 contains (in Part 2) transitional provision about the lifetime

30

allowance charge.

211     

Amount of charge

(1)   

The lifetime allowance charge is a charge in respect of the chargeable amount.

(2)   

The lifetime allowance charge is a charge—

(a)   

at the rate of 55% in respect of so much (if any) of the chargeable

35

amount as constitutes the lump-sum amount, and

(b)   

at the rate of 25% in respect of so much (if any) of the chargeable

amount as constitutes the retained amount.

(3)   

The “chargeable amount” is the aggregate of—

(a)   

the basic amount, and

40

(b)   

any amount which is treated as forming part of the lump-sum amount

under subsection (6) or of the retained amount under subsection (8).

(4)   

The “basic amount”—

 

 

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

183

 

(a)   

if the first lifetime allowance condition is met, is the amount by which

the amount crystallised by the benefit crystallisation event exceeds the

amount of the individual’s lifetime allowance available on it, and

(b)   

if the second lifetime allowance charge condition is met, is the amount

crystallised by the benefit crystallisation event.

5

(5)   

The “lump-sum amount” is the aggregate of—

(a)   

so much of the basic amount as is paid as a lump sum to the individual

or a lump sum death benefit in respect of the individual, and

(b)   

any amount which is treated as forming part of the lump-sum amount

under subsection (6).

10

(6)   

If and to the extent that the tax payable under this section on any of the lump-

sum amount is covered by a scheme-funded tax payment, it is to be treated as

itself forming part of the lump-sum amount.

(7)   

The “retained amount” is the aggregate of—

(a)   

so much of the basic amount as is not paid as a lump sum to the

15

individual or a lump sum death benefit in respect of the individual, and

(b)   

any amount which is treated as forming part of the retained amount

under subsection (8).

(8)   

If and to the extent that the tax payable under this section on any of the retained

amount is covered by a scheme-funded tax payment, it is to be treated as itself

20

forming part of the retained amount.

(9)   

An amount of tax payable under this section is “covered by a scheme-funded

tax payment” if—

(a)   

the tax is paid by the scheme administrator, and

(b)   

the individual’s rights under the pension scheme are not reduced so as

25

fully to reflect the amount of the payment of tax.

(10)   

Whether the individual’s rights under the pension scheme are reduced so as

fully to reflect the amount of the payment of tax is to be determined in

accordance with normal actuarial practice.

(11)   

The chargeable amount is not to be treated as income for any purpose of the

30

Tax Acts.

212     

Benefit crystallisation events and amounts crystallised

(1)   

This table sets out—

(a)   

the events which are benefit crystallisation events in relation to the

individual, and

35

(b)   

the amount which is crystallised by each of those events.

 

 

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

184

 
 

BENEFIT CRYSTALLISATION

AMOUNT CRYSTALLISED

 
 

EVENTS

  
 

1. The designation of sums or assets

The aggregate of the amount of the

 
 

held for the purposes of a money

sums and the market value of the

 
 

purchase arrangement under any of

assets designated

 

5

 

the relevant pension schemes as

  
 

available for the payment of

  
 

unsecured pension to the individual

  
 

2. The individual becoming entitled

  
 

to a scheme pension under any of

  

10

 

the relevant pension schemes

  
 

3. The individual, having become so

  
 

entitled, becoming entitled to

  
 

payment of the scheme pension,

  
 

otherwise than in excepted

  

15

 

circumstances, at an annual rate

  
 

which exceeds the rate at which it

  
 

was last paid by more than the

  
 

permitted margin

  
 

4. The individual becoming entitled

The aggregate of the amount of such

 

20

 

to a lifetime annuity purchased

of the sums, and the market value of

 
 

under a money purchase

such of the assets, representing the

 
 

arrangement under any of the

individual’s rights under the

 
 

relevant pension schemes

arrangement as are applied to

 
  

purchase the lifetime annuity

 

25

 

5. The individual reaching the age of

  
 

75 when prospectively entitled to a

  
 

scheme pension or a lump sum (or

  
 

both) under a defined benefits

  
 

arrangement under any of the

  

30

 

relevant pension schemes

  
 

6. The individual becoming entitled

The amount of the lump sum

 
 

to a relevant lump sum under any of

  
 

the relevant pension schemes

  
 

7. A person being paid a relevant

The amount of the lump sum death

 

35

 

lump sum death benefit in respect of

benefit

 
 

the individual under any of the

  
 

relevant pension schemes

  
 

8. The transfer of sums or assets held

The aggregate of the amount of any

 
 

for the purposes of, or representing

sums transferred and the market

 

40

 

accrued rights under, any of the

value of any assets transferred

 
 

relevant pension schemes so as to

  
 

become held for the purposes of or

  
 

to represent rights under a

  
 

recognised overseas pension scheme

  

45

 

in connection with the individual’s

  
 

membership of that pension scheme

  
 

 

 
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