Finance Bill

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Session 2002 - 03
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Finance Bill

Finance Bill
Schedule 30 — Registered pension schemes: employer loans
462

Schedule 30
Section 175

Registered pension schemes: employer loans
Definitions
Charge of adequate value
1     (1)
A charge is of adequate value if it meets conditions A, B and C.
5
      (2)
Condition A is that, at the time the charge is given, the market value of the
assets subject to the charge—
(a)
in the case of the first charge to secure the loan, is at least equal to the
amount owing (including interest), and
(b)
in any other case, is at least equal to the lower of that amount and the
10
market value of the assets subject to the previous charge.
      (3)
Condition B is that if, at any time after the charge is given, the market value
of the assets charged is less than would be required under condition A if the
charge were given at that time, the reduction in value is not attributable to
any step taken by the pension scheme, the sponsoring employer or a person
15
connected with the sponsoring employer.
      (4)
Condition C is that the charge takes priority over any other charge over the
assets.
Loan repayment date
2     (1)
“Loan repayment date” means the date by which the total amount owing
20
(including interest) must be paid.
      (2)
A standard loan repayment date is a loan repayment date before the end of
the period of five years beginning with the date on which the loan is made.
Loan year
3     (1)
“Loan year” means—
25
(a)
the period of 12 months beginning with the date on which the loan is
made, and
(b)
each succeeding period of 12 months.
      (2)
But in the period of 12 months in which the loan repayment date falls, the
loan year ends on the loan repayment date (and that loan year is the last loan
30
year).
Required amount
4
“The required amount”, in relation to a period beginning with the date on
which the loan is made and ending with the last day of a loan year, is—

where—
35

L is the amount of the loan,

TIP is the total interest payable on the loan,

TLY is the total number of loan years, and

NLY is the number of loan years in the period.

Finance Bill
Schedule 30 — Registered pension schemes: employer loans
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Amount of unauthorised payment
Loan does not comply with section 175(1) when made
5     (1)
If a loan does not comply with section 175(1) (authorised employer loan)
when it is made, there is an unauthorised payment of an amount equal to the
largest of such of amounts 1, 2, A, B, and C as arise in relation to the loan.
5
      (2)
Paragraphs 12 to 16 explain amounts 1, 2, A, B and C.
Loan ceases to be secured by charge of adequate value
6
If at any time after a loan is made the loan ceases to be secured by a charge
of adequate value, there is an unauthorised payment equal to amount 2 (see
paragraph 13).
10
Further reduction in value of charge which is not of adequate value
7     (1)
If at any time after a loan is made—
(a)
the loan is secured by a charge which is not of adequate value, and
(b)
an event mentioned in sub-paragraph (2) occurs,

there is an unauthorised payment.
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      (2)
The events are—
(a)
the loan ceasing to be secured by a charge,
(b)
a charge being given which does not comply with conditions A or C,
(c)
a reduction in the value of the assets charged which does not comply
with condition B, and
20
(d)
the charge ceasing to comply with condition C.
      (3)
The amount of the unauthorised payment is—

where—
AAE is amount 2 (see paragraph 13) calculated after the event, and
ABE is amount 2 (see paragraph 13) calculated before the event.
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      (4)
Paragraph 1 defines conditions A, B and C.
Loan ceases to comply with repayment terms
8     (1)
If at any time after a loan is made—
(a)
there is an alteration in the repayment terms, and
(b)
as a result the repayment terms cease to comply with one or more
30
paragraphs of section 175(2) (authorised repayment terms),

there is an unauthorised payment of an amount equal to the larger of such
of amounts A, B, and C (see paragraphs 14 to 16) as arise when that
paragraph or those paragraphs are not complied with.
Increase in extent to which loan does not comply with repayment terms
35
9     (1)
If at any time after a loan is made—
(a)
there is an alteration in the repayment terms, and
(b)
as a result the deterioration condition is met in relation to one or
more paragraphs of section 175(2) (authorised repayment terms)
which were not complied with before the alteration,
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Finance Bill
Schedule 30 — Registered pension schemes: employer loans
464


there is an unauthorised payment of an amount calculated in accordance
with sub-paragraphs (3) and (4).
      (2)
The deterioration condition is met in relation to a paragraph if—
      (3)
For each paragraph in relation to which the deterioration condition is met,
calculate—
5
      (4)
There is an unauthorised payment of an amount equal to the largest of the
amounts calculated under sub-paragraph (3).
      (5)
In this paragraph—
AAA, in relation to a paragraph of section 175(2) which was not
complied with before the alteration in the repayment terms, is the
10
amount arising when that paragraph is not complied with,
calculated after the alteration in the repayment terms, and
ABA, in relation to such a paragraph, is the amount arising when that
paragraph is not complied with, calculated before the alteration in
the repayment terms.
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Prevention of double charging
10    (1)
This paragraph applies if on any date there is an unauthorised payment
under more than one of paragraphs 6 to 9.
      (2)
There is a single unauthorised payment.
      (3)
The amount of the unauthorised payment is an amount equal to the amount
20
of the greater or greatest of the unauthorised payments under those
paragraphs.
Total unauthorised payments not to exceed amount of loan
11
If the aggregate amount of the unauthorised payments in relation to a loan
under paragraphs 5 to 10 exceeds the amount of the loan when it was made,
25
the excess is to be treated as not being an unauthorised payment.
Amount 1
12    (1)
Amount 1 arises if paragraph (a) of section 175(1) (amount of loan must not
exceed 50% of pension scheme assets) is not complied with.
      (2)
Amount 1 is—
30

where—
AL is the amount of the loan, and
VA is an amount equal to 50% of the aggregate of the amount of the
sums, and the market value of the assets, held for the purposes of
the pension scheme before the loan is made.
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Finance Bill
Schedule 30 — Registered pension schemes: employer loans
465

Amount 2
13    (1)
Amount 2 arises if paragraph (b) of section 175(1) (loan must be secured by
charge of adequate value) is not complied with.
      (2)
Amount 2 is—

where—
5
AO is the amount owing (including interest) at the relevant time, and
VA is the market value at that time of the assets charged but if the loan
is not secured by a charge, or is secured by a charge which does not
meet condition C (as defined in paragraph 1), is nil.
Amount A
10
14    (1)
Amount A arises if paragraph (a) of section 175(2) (interest rate to be not less
than prescribed amount) is not complied with.
      (2)
Amount A is—

where—
IR is the rate of interest payable at the relevant time,
15
PIR is the rate of interest prescribed by regulations under that
paragraph, and
AO is the amount owing (not including interest) at the relevant time.
Amount B
15    (1)
Amount B arises if paragraph (b) of section 175(2) (loan repayment date to
20
be within five years unless postponed) is not complied with.
      (2)
Amount B is—

where—
DLRP is the number of days in the period which begins with the date
on which the loan is made and ends with the loan repayment date,
25
DFY is the number of days in the period which begins with the date
on which the loan is made and ends five years after that date, and
AO is the amount owing (including interest) at the relevant time.
      (3)
But if the amount produced by the fraction in sub-paragraph (2) is greater
than 1, amount B is the amount owing (including interest) at the relevant
30
time.
      (4)
If the loan repayment date has been postponed under section 175(3), sub-
paragraph (2) applies as if references to the date on which the loan is made
were to the standard loan repayment date on which the loan repayment date
was postponed.
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Finance Bill
Schedule 31 — Taxation of benefits under registered pension schemes
466

Amount C
16    (1)
Amount C arises if paragraph (c) of section 175(2) (amount payable for a
period to be not less than required amount) is not complied with and is
calculated as follows.
      (2)
In relation to each period beginning with the date on which the loan is made
5
and ending with the last day of a loan year, calculate—

where—
RA is the required amount in relation to that period, and
AP is the amount payable during that period.
      (3)
If an amount calculated under sub-paragraph (2) is negative, treat that
10
amount as nil.
      (4)
Amount C is the largest of the amounts calculated under sub-paragraph (2).
Schedule 31
Section 200

Taxation of benefits under registered pension schemes
1
Part 9 of ITEPA 2003 (pension income) is amended as follows.
15
2
In section 565 (structure of Part 9), for “Chapters 16 to 18 deal with”
substitute—

“Chapter 15A makes provision about exemptions and charges in
relation to lump sums under registered pension schemes;

Chapters 17 and 18 deal with other”.
20
3     (1)
Section 566(4) (nature of charge to tax on pension income) is amended as
follows.
      (2)
For the entries relating to sections 580, 583, 590, 595, 598, 601 and 605
substitute—

“Section 579A
Pensions under registered
Chapter 5A”

25

pension schemes

      (3)
Omit the entry relating to section 623.
      (4)
Insert at the end—

“Section 636B
Pensions treated as arising from
Chapter 15A

payment of trivial commutation

30

lump sums and winding-up

lump sums under registered

pension schemes

Finance Bill
Schedule 31 — Taxation of benefits under registered pension schemes
467

Section 636C
Pensions treated as arising from
Chapter 15A”

payment of trivial commutation

lump sum death benefits and

winding-up lump sum death

benefits under registered pension

5

schemes

4
In section 567(4)(a) (amount charged to tax), for “15” substitute “15A”.
5
In section 568 (person liable to tax), for “15” substitute “15A”.
6
After Chapter 5 insert—
“Chapter 5A
10
Pensions under registered pension schemes
579A
Pensions
(1)
This section applies to any pension under a registered pension
scheme (but subject to subsection (2)).
(2)
This section does not apply to a pension under a registered pension
15
scheme if and to the extent that, when it is paid, a liability to the
unauthorised payments charge arises in respect of the amount of the
payment (see section 204 of FA 2004).
579B
Taxable pension income
If section 579A applies, the taxable pension income for a tax year is
20
the full amount of the pension under the registered pension scheme
that accrues in that year irrespective of when any amount is actually
paid.
579C
Person liable for tax
If section 579A applies, the person liable for any tax charged under
25
this Part is the person receiving or entitled to the pension under the
registered pension scheme.
579D
Interpretation
In this Chapter “pension under a registered pension scheme”
includes—
30
(a)
an annuity under, or purchased with sums or assets held for
the purposes of, or representing acquired rights under, a
registered pension scheme, and
(b)
income withdrawal or dependants’ income withdrawal
under a registered pension scheme.
35
In paragraph (b) “income withdrawal” and “dependants’ income
withdrawal” have the meaning given by paragraphs 7 and 21 of
Schedule 28 to FA 2004.”
7
Omit Chapters 6, 7, 8 and 9 (pensions under approved schemes).
8     (1)
Section 610 (annuities under sponsored superannuation schemes) is
40
amended as follows.
      (2)
In subsection (1)—

Finance Bill
Schedule 31 — Taxation of benefits under registered pension schemes
468

(a)
in paragraph (a), for “a sponsored superannuation scheme”
substitute “an occupational pension scheme that is not a registered
pension scheme”, and
(b)
in paragraph (b), for “a sponsored superannuation scheme”
substitute “such an occupational pension scheme”.
5
      (3)
In subsection (3), for “any provision of Chapter 6, 7, 8 or 9” substitute
“Chapter 5A”.
      (4)
For subsection (4) substitute—
“(4)
In this section “occupational pension scheme” has the same meaning
as in Part 4 of FA 2004 (see section 147(5) of that Act).”
10
      (5)
In the heading, for “sponsored superannuation” substitute “non-registered
occupational pension”.
9
In section 611(3) (annuities in recognition of another’s service), for “any
provision of Chapter 6, 7, 8 or 9” substitute “Chapter 5A”.
10
Omit Chapter 13 (return of surplus additional voluntary contributions
15
under exempt approved schemes and relevant statutory schemes).
11
After Chapter 15 insert—
“Chapter 15A
Lump sums under registered pension schemes
636A
Exemption for certain lump sums under registered pension schemes
20
(1)
No liability to income tax arises on a lump sum paid under a
registered pension scheme if the lump sum is—
(a)
a pension commencement lump sum,
(b)
a serious ill-health lump sum,
(c)
a refund of excess contributions lump sum,
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(d)
a defined benefits lump sum death benefit,
(e)
an uncrystallised funds lump sum death benefit, or
(f)
a transfer lump sum death benefit.
(2)
But subsection (1) does not limit the operation of sections 210 to 222
of FA 2004 (lifetime allowance charge).
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(3)
A short service refund lump sum under a registered pension scheme
is subject to income tax in accordance with section 201 of FA 2004
(charge to tax on scheme administrator in respect of such a lump
sum) but not otherwise.
(4)
A lump sum under a registered pension scheme which is—
35
(a)
a pension protection lump sum death benefit,
(b)
an annuity protection lump sum death benefit, or
(c)
an unsecured pension fund lump sum death benefit,

is subject to income tax in accordance with section 202 of FA 2004
(charge to tax on scheme administrator in respect of such lump sum
40
death benefits) but not otherwise.