Finance Bill

House of Commons

Session 2002 - 03
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Finance Bill

Finance Bill
Part 4 — Pension schemes etc
Chapter 5 — Registered pension schemes: tax charges
192

(a)
beginning with the date on which the benefits first began to accrue to
or in respect of the individual under the recognised overseas scheme
arrangement or, if later, 6th April 2006, and
(b)
ending immediately before the recognised overseas scheme transfer.
(8)
But if benefits ceased to accrue to or in respect of the individual under the
5
recognised overseas scheme arrangement before the recognised overseas
scheme transfer, the overseas arrangement active membership period is to be
treated as having ended then.
(9)
This section only applies if notice of intention to rely on it is given to the Inland
Revenue in accordance with regulations made by the Board of Inland Revenue.
10
221
Overseas scheme transfers: money purchase arrangements
(1)
This section applies in the case of a recognised overseas scheme arrangement
that was a money purchase arrangement.
(2)
The relevant relievable amount is—
(a)
if the recognised overseas scheme arrangement was a cash balance
15
arrangement, the cash balance relevant relievable amount (see
subsections (3) to (5)), and
(b)
if the recognised overseas scheme arrangement was any other sort of
money purchase arrangement, the other money purchase relevant
relievable amount (see subsections (6) and (7)).
20
(3)
The cash balance relevant relievable amount is—
(a)
the amount arrived at by the application of subsection (4) in relation to
the part of the overseas arrangement active membership period during
which the individual was not a relevant overseas individual, or
(b)
if there have been two or more parts of that period during which the
25
individual was not a relevant overseas individual, the aggregate of the
amounts arrived at by the application of subsection (4) in relation to
each of those parts of that period.
(4)
The amount arrived at by the application of this subsection in relation to any
part of the overseas arrangement active membership period is—
30
where—
CV is the closing value of the individual’s rights under the arrangement,
and
OV is the opening value of the individual’s rights under the arrangement.
(5)
For the purposes of subsection (4)—
35
(a)
the closing value of the individual’s rights under the recognised
overseas scheme arrangement is the amount which would, on the
valuation assumptions (see section 271), be available for the provision
of benefits to or in respect of the individual under the arrangement if
the individual became entitled to the benefits at the end of that part of
40
that period, and
(b)
the opening value of the individual’s rights under the arrangement is
the amount which would, on the valuation assumptions, be available
for the provision of benefits to or in respect of the individual under the
arrangement if the individual became entitled to the benefits at the
45
beginning of that part of that period.

Finance Bill
Part 4 — Pension schemes etc
Chapter 5 — Registered pension schemes: tax charges
193

(6)
The other money purchase relevant relievable amount is—
(a)
the amount arrived at by the application of subsection (7) in relation to
the part of the overseas arrangement active membership period during
which the individual was not a relevant overseas individual, or
(b)
if there have been two or more parts of that period during which the
5
individual was not a relevant overseas individual, the aggregate of the
amounts arrived at by the application of subsection (7) in relation to
each of those parts of that period.
(7)
The amount arrived at by the application of this subsection in relation to any
part of the overseas arrangement active membership period is the amount of
10
the contributions made under the arrangement by or in respect of the
individual in any part of the overseas arrangement active membership period
during which the individual was not a relevant overseas individual.
222
Overseas scheme transfers: other arrangements
(1)
This section applies in the case of a recognised overseas scheme arrangement
15
that was not a money purchase arrangement.
(2)
The relevant relievable amount is—
(a)
if the recognised overseas scheme arrangement was a defined benefits
arrangement, the defined benefits relevant relievable amount (see
subsections (3) and (4)), and
20
(b)
if the recognised overseas scheme arrangement was a hybrid
arrangement, the hybrid relevant relievable amount (see subsections
(5) to (7)).
(3)
The defined benefits relevant relievable amount is—
(a)
the amount arrived at by the application of subsection (4) in relation to
25
the part of the overseas arrangement active membership period during
which the individual was not a relevant overseas individual, or
(b)
if there have been two or more parts of that period during which the
individual was not a relevant overseas individual, the aggregate of the
amounts arrived at by the application of subsection (4) in relation to
30
each of those parts of that period.
(4)
The amount arrived at by the application of this subsection in relation to any
part of the overseas arrangement active membership period is—
where—
RVF is the relevant valuation factor (see section 270),
35
PE is the annual rate of the pension which would, on the valuation
assumptions (see section 271), be payable to the individual under the
recognised overseas scheme arrangement if the individual became
entitled to payment of it at the end of that part of that period,
LSE is the amount of the lump sum to which the individual would, on the
40
valuation assumptions, be entitled under the arrangement (otherwise
than by commutation of pension) if the individual became entitled to
payment of it at the end of that part of that period,
PB is the annual rate of the pension which would, on the valuation
assumptions, be payable to the individual under the arrangement if the
45

Finance Bill
Part 4 — Pension schemes etc
Chapter 5 — Registered pension schemes: tax charges
194

individual became entitled to payment of it at the beginning of that part
of that period, and
LSB is the amount of the lump sum to which the individual would, on the
valuation assumptions, be entitled under the arrangement (otherwise
than by commutation of pension) if the individual became entitled to
5
payment of it at the beginning of that part of that period.
(5)
The hybrid relevant relievable amount is the greater or greatest of such of—
(a)
what would be the cash balance relevant relievable amount (under
section 221) if the recognised overseas scheme arrangement had been a
cash balance arrangement,
10
(b)
what would be the other money purchase relevant relievable amount
(under that section) if that arrangement had been any other sort of
money purchase arrangement, and
(c)
what would be the defined benefits relevant relievable amount (under
subsections (3) and (4)) if that arrangement had been a defined benefits
15
arrangement,

as are relevant to that arrangement.
(6)
An amount is relevant to a hybrid arrangement if, in any circumstances, the
benefits that may be provided to or in respect of the individual under the
arrangement may be benefits linked to that amount.
20
(7)
For that purpose—
(a)
cash balance benefits are linked to the cash balance relevant relievable
amount,
(b)
other money purchase benefits are linked to the other money purchase
relevant relievable amount, and
25
(c)
defined benefits are linked to the defined benefits relevant relievable
amount.
Annual allowance charge
223
Annual allowance charge
(1)
A charge to income tax, to be known as the annual allowance charge, arises
30
where—
(a)
the total pension input amount for a tax year in the case of an individual
who is a member of one or more registered pension schemes, exceeds
(b)
the amount of the annual allowance for the tax year.
(2)
The person liable to the annual allowance charge is the individual.
35
(3)
The individual is liable to the annual allowance charge whether or not—
(a)
the individual, and
(b)
the scheme administrator of the pension scheme or schemes concerned,

are resident, ordinarily resident or domiciled in the United Kingdom.
(4)
The annual allowance charge is a charge at the rate of 40% in respect of the
40
amount by which the total pension input amount exceeds the amount of the
annual allowance.
(5)
That excess is not to be treated as income for any purpose of the Tax Acts.

Finance Bill
Part 4 — Pension schemes etc
Chapter 5 — Registered pension schemes: tax charges
195

(6)
The following sections make further provision about the annual allowance
charge—

section 224 (annual allowance),

section 225 (total pension input amount to be aggregate of pension input
amounts for pension input periods ending in tax year),
5

sections 226 to 233 (pension input amounts), and

section 234 (pension input period).
(7)
Schedule 34 contains (in Part 4) transitional provision about the annual
allowance charge.
224
Annual allowance
10
(1)
The annual allowance for the tax year 2006-07 is £215,000.
(2)
The annual allowance for each subsequent tax year is such amount, not being
less than the annual allowance for the immediately preceding tax year, as is
specified by order made by the Treasury.
225
Total pension input amount
15
(1)
The total pension input amount is arrived at by aggregating the pension input
amounts in respect of each arrangement relating to the individual under a
registered pension scheme of which the individual is a member.
(2)
The pension input amount in respect of an arrangement—
(a)
is the amount arrived at under sections 226 to 228 if it is a cash balance
20
arrangement,
(b)
is the amount arrived at under section 229 if it is any other sort of
money purchase arrangement,
(c)
is the amount arrived at under sections 230 to 232 if it is a defined
benefits arrangement, and
25
(d)
is the amount arrived at under section 233 if it is a hybrid arrangement.
(3)
But there is no pension input amount in respect of an arrangement if, before the
end of the tax year, the individual—
(a)
has become entitled to all the benefits which may be provided to the
individual under the arrangement, or
30
(b)
has died.
226
Cash balance arrangements
(1)
The pension input amount in respect of a cash balance arrangement is the
amount of any increase in the value of the individual’s rights under the
arrangement during the pension input period of the arrangement that ends in
35
the tax year.
(2)
There is an increase in the value of the individual’s rights under the
arrangement during the pension input period if—
(a)
the opening value of the individual’s rights under the arrangement, is
exceeded by
40
(b)
the closing value of the individual’s rights under the arrangement.
(3)
The amount of the increase in the value of the individual’s rights under the
arrangement during the pension input period is the amount of that excess.

Finance Bill
Part 4 — Pension schemes etc
Chapter 5 — Registered pension schemes: tax charges
196

(4)
The opening value of the individual’s rights under the arrangement is the
amount which would, on the valuation assumptions (see section 271), be
available for the provision of benefits to or in respect of the individual under
the arrangement if the individual became entitled to the benefits at the
beginning of the pension input period.
5
(5)
The closing value of the individual’s rights under the arrangement is the
amount which would, on the valuation assumptions, be available for the
provision of benefits to or in respect of the individual under the arrangement
if the individual became entitled to the benefits at the end of the pension input
period.
10
(6)
Section 227 (uprating of opening value) and section 228 (adjustments of closing
value) supplement this section.
227
Cash balance arrangements: uprating of opening value
(1)
This section applies for adjusting the opening value of the individual’s rights
as calculated under section 226(4).
15
(2)
The opening value is to be increased by the appropriate percentage.
(3)
The appropriate percentage is whichever is the greatest of—
(a)
5%,
(b)
the percentage (if any) by which the retail prices index for the month in
which the pension input period ends is higher than it was for the month
20
in which it began, and
(c)
if provision made by regulations made by the Board of Inland Revenue
applies in relation to the arrangement, the percentage to which the
regulations refer.
228
Cash balance arrangements: adjustments of closing value
25
(1)
This section applies for adjusting the closing value of the individual’s rights
under the arrangement as calculated under section 226(5).
(2)
If, during the pension input period, the rights of the individual under the
arrangement have been reduced by having become subject to a pension debit,
the amount of the debit is to be added.
30
(3)
If, during the pension input period, the rights of the individual under the
arrangement have been increased by the individual having become entitled to
a pension credit deriving from the same or another registered pension scheme,
the amount of the credit is to be subtracted.
(4)
Subsection (5) applies if, during the pension input period, the rights of the
35
individual under the arrangement have been reduced by virtue of a transfer of
any sum or asset held for the purposes of, or representing accrued rights under,
the arrangement so as to become held for the purposes of, or to represent rights
under, any other pension scheme that is—
(a)
a registered pension scheme, or
40
(b)
a recognised overseas pension scheme.
(5)
The aggregate of the amount of any sums transferred and the market value of
any assets transferred is to be added.

Finance Bill
Part 4 — Pension schemes etc
Chapter 5 — Registered pension schemes: tax charges
197

(6)
Subsection (7) applies if, during the pension input period, the rights of the
individual under the arrangement have been increased by virtue of a transfer
of any sums or assets held for the purposes of, or representing accrued rights
under, any pension scheme so as to become held for the purposes of, or to
represent rights under, the arrangement.
5
(7)
The aggregate of the amount of any sums transferred and the market value of
any assets transferred is to be subtracted.
(8)
If, during the pension input period, a benefit crystallisation event occurs in
relation to the individual and the arrangement, the amount crystallised is to be
added (but this is subject to section 225(3)).
10
(9)
If, during the pension input period, minimum payments are made under—
(a)
section 8 of the Pension Schemes Act 1993 (c. 48), or
(b)
section 4 of the Pension Schemes (Northern Ireland) Act 1993 (c. 49),

in relation to the individual in connection with the arrangement, the amount
paid is to be subtracted.
15
229
Other money purchase arrangements
(1)
The pension input amount in respect of a money purchase arrangement other
than a cash balance arrangement is the total of—
(a)
any relievable pension contributions paid by or on behalf of the
individual under the arrangement, and
20
(b)
contributions paid in respect of the individual under the arrangement
by an employer of the individual,

during the pension input period of the arrangement that ends in the tax year.
(2)
The references to contributions in subsection (1)(a) and (b) do not include
minimum payments under—
25
(a)
section 8 of the Pension Schemes Act 1993, or
(b)
section 4 of the Pension Schemes (Northern Ireland) Act 1993,

or any amount recovered under regulations made under subsection (3) of
either of those sections.
(3)
When at any time contributions paid under a pension scheme by an employer
30
otherwise than in respect of any individual become held for the purposes of the
provision under an arrangement under the pension scheme of benefits to or in
respect of an individual, they are to be treated as being contributions paid at
that time in respect of the individual under the arrangement.
230
Defined benefits arrangements
35
(1)
The pension input amount in respect of a defined benefits arrangement is the
amount of any increase in the value of the individual’s rights under the
arrangement during the pension input period of the arrangement that ends in
the tax year.
(2)
There is an increase in the value of the individual’s rights under the
40
arrangement during the pension input period if—
(a)
the opening value of the individual’s rights under the arrangement, is
exceeded by
(b)
the closing value of the individual’s rights under the arrangement.

Finance Bill
Part 4 — Pension schemes etc
Chapter 5 — Registered pension schemes: tax charges
198

(3)
The amount of the increase in the value of the individual’s rights under the
arrangement during the pension input period is the amount of that excess.
(4)
The opening value of the individual’s rights under the arrangement is—
where—
PB is the annual rate of the pension which would, on the valuation
5
assumptions (see section 271), be payable to the individual under the
arrangement if the individual became entitled to payment of it at the
beginning of the pension input period, and
LSB is the amount of the lump sum to which the individual would, on
the valuation assumptions, be entitled under the arrangement
10
(otherwise than by commutation of pension) if the individual became
entitled to the payment of it at that time.
(5)
The closing value of the individual’s rights under the arrangement is—
where—
PE is the annual rate of the pension which would, on the valuation
15
assumptions, be payable to the individual under the arrangement if the
individual became entitled to payment of it at the end of the pension
input period, and
LSE is the amount of the lump sum to which the individual would, on
the valuation assumptions, be entitled under the arrangement
20
(otherwise than by commutation of pension) if the individual became
entitled to the payment of it at that time.
(6)
Section 231 (uprating of opening value) and section 232 (adjustments of closing
value) supplement this section.
231
Defined benefits arrangements: uprating of opening value
25
(1)
This section applies for adjusting the opening value of the individual’s rights
as calculated under section 230(4) in a case where rights do not accrue to the
individual under the arrangement during the pension input period.
(2)
The opening value is to be increased by the appropriate percentage.
(3)
The appropriate percentage is whichever is the greatest of—
30
(a)
5%,
(b)
the percentage (if any) by which the retail prices index for the month in
which the pension input period ends is higher than it was for the month
in which it began, and
(c)
if provision made by regulations made by the Board of Inland Revenue
35
applies in relation to the arrangement, the percentage to which the
regulations refer.
232
Defined benefits arrangements: adjustments of closing value
(1)
This section applies for adjusting the closing value of the individual’s rights as
calculated under section 230(5).
40
(2)
If, during the pension input period, the rights of the individual under the
arrangement have been reduced by having become subject to a pension debit,
the amount of the debit is to be added.