Finance (No.2) Bill

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Finance (No.2) Bill

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
431

      (3)
The pension scheme is to be treated for the purposes of the taxable
property provisions as acquiring the interest in the property on
6th April 2006.
      (4)
For the purposes of Schedule 29A the total taxable amount in
relation to any unauthorised payment which the pension scheme
5
is treated as having made by reason of the acquisition is—
(a)
the market value on 6th April 2006 of the interest in the
property held by the person who holds it directly, or
(b)
if the interest in the property is a lease at a rent, the amount
of consideration that would be treated as given by the
10
person for the lease by virtue of paragraph 34 of Schedule
29A if it were assigned to the person on that date.
      (5)
Where—
(a)
the pension scheme holds the interest in the property
directly, and
15
(b)
the interest is not a lease at a rent,

for the purposes of section 185G (gains from taxable property:
disposal by person holding directly) the pension scheme is to be
treated as having acquired the interest for a consideration equal to
its market value on 6th April 2006.
20
37D   (1)
This paragraph applies where—
(a)
sub-paragraph (1) or (2) of paragraph 37A applies in
relation to a pension scheme and an interest in property,
(b)
immediately before 6th April 2006 the pension scheme was
a self-invested personal pension scheme or a small self-
25
administered scheme,
(c)
on that date the pension scheme holds the interest in the
property indirectly or (if sub-paragraph (2) of paragraph
37A applies in relation to the pension scheme and the
interest in the property) the pension scheme will hold the
30
interest indirectly once it has been acquired pursuant to
the contract,
(d)
the property is residential property on that date, and
(e)
improvement works on the property were begun after 5th
December 2005.
35
      (2)
This paragraph also applies where—
(a)
sub-paragraph (1) or (2) of paragraph 37A applies in
relation to a pension scheme and an interest in property,
(b)
immediately before 6th April 2006 the pension scheme was
a small self-administered scheme,
40
(c)
on that date the pension scheme holds the interest in the
property directly,
(d)
the pension scheme acquired the interest before 5th
August 1991,
(e)
the property is residential property on 6th April 2006, and
45
(f)
improvement works on the property were begun after 5th
December 2005.

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
432

      (3)
If the works are completed on or after 6th April 2006, paragraph
37B applies in relation to the pension scheme and the interest in
the property as if the works were begun on or after that date.
      (4)
If the works are completed before that date—
(a)
paragraph 37A does not apply in relation to the pension
5
scheme and the interest in the property, and
(b)
unless the pension scheme has still to acquire the interest
in the property on that date, sub-paragraphs (3) to (5) of
paragraph 37C apply in relation to the pension scheme and
the interest.
10
      (5)
For the purposes of this paragraph improvement works are to be
taken to have been begun before 6th December 2005 only if—
(a)
a binding contract for the works was entered into before
that date, or
(b)
a substantial amount of the works has been carried out
15
before that date.
37E   (1)
This paragraph applies where—
(a)
paragraph 37A would otherwise apply in relation to a
pension scheme and an interest in property,
(b)
immediately before 6th April 2006 the pension scheme was
20
a retirement benefits scheme approved under section 590
of ICTA, and
(c)
the pension scheme was approved under that section after
5th December 2005.
      (2)
Paragraph 37A does not apply in relation to the pension scheme
25
and the interest in the property.
      (3)
Unless the pension scheme has still to acquire the interest in the
property on 6th April 2006, sub-paragraphs (3) to (5) of paragraph
37C apply in relation to the pension scheme and the interest.
Post-commencement acquisitions of taxable property
30
37F   (1)
This paragraph applies where on or after 6th April 2006 an
investment-regulated pension scheme acquires an interest in
taxable property consisting of tangible moveable property
because a person in whom the pension scheme directly or
indirectly holds an interest comes to hold the interest in the
35
property directly.
      (2)
The taxable property provisions (apart from this paragraph and
paragraph 37G) do not apply in relation to the pension scheme
and the interest in the property if the conditions in sub-paragraph
(3) are met.
40
      (3)
Those conditions are that—
(a)
on 6th April 2006 the pension scheme held the interest in
the person by virtue of acquiring it before that date,
(b)
immediately before that date the pension scheme was not
prohibited from holding the interest in the person,
45
(c)
at no time during the period beginning with that date and
ending immediately before the acquisition of the interest in

Finance (No.2) Bill
Schedule 21 — Taxable property held by investment-regulated pension schemes
433

the property has the pension scheme’s interest in the
person been such that, if it had held that interest in the
person immediately before 6th April 2006, it would have
been prohibited from holding that interest at that time, and
(d)
the person acquires the interest in the property so that the
5
property may be used for the purposes of a trade,
profession or vocation carried on by the person or for the
purposes of its administration or management.
      (4)
This paragraph is subject to paragraph 37G.
37G   (1)
Where Condition A or B is met in relation to the pension scheme
10
and an interest in property to which paragraph 37F has applied,
the pension scheme is to be treated for the purposes of the taxable
property provisions as acquiring the interest in the property on
the date on which the Condition is met.
      (2)
Condition A is that there is a change in the pension scheme’s
15
interest in the person who holds the interest in the property
directly such that, if the change had occurred immediately before
6th April 2006, the pension scheme would have been prohibited
from holding the interest in the person at that time.
      (3)
Condition B is that the property ceases to be used for the purposes
20
of—
(a)
a trade, profession or vocation carried on by the person, or
(b)
its administration or management.
      (4)
For the purposes of Schedule 29A the total taxable amount in
relation to any unauthorised payment which the pension scheme
25
is treated as having made by reason of the acquisition is the
market value on the relevant date of the interest in the property
held by the person.
37H   (1)
This paragraph applies where on or after 6th April 2006 an
investment-regulated pension scheme acquires an interest in
30
taxable property consisting of residential property because a
person in whom the pension scheme directly or indirectly holds an
interest comes to hold the interest in the property directly.
      (2)
The taxable property provisions (apart from this paragraph and
paragraph 37I) do not apply in relation to the pension scheme and
35
the interest in the property if the conditions in sub-paragraph (3)
are met.
      (3)
Those conditions are that—
(a)
on 6th April 2006 the pension scheme held the interest in
the person by virtue of acquiring it before that date,
40
(b)
immediately before that date the pension scheme was not
prohibited from holding the interest in the person,
(c)
immediately before that date the person had a business
involving the holding and letting of residential property
and held directly five or more assets consisting of interests
45
in residential property for the purposes of that business,
(d)
at no time during the period beginning with that date and
ending immediately before the acquisition of the interest in
the property has the pension scheme’s interest in the

Finance (No.2) Bill
Schedule 22 — Pension schemes: inheritance tax
434

person been such that, if it had held that interest in the
person immediately before 6th April 2006, it would have
been prohibited from holding that interest at that time,
(e)
the person acquires the interest in the property for the
purposes of its property rental business, and
5
(f)
after the acquisition of the interest in the property, the
property is not occupied or used by a member of the
pension scheme or a person connected with such a
member.
      (4)
This paragraph is subject to paragraph 37I.
10
      (5)
Section 839 of ICTA (connected persons) applies for the purposes
of this paragraph.
37I   (1)
Where Condition A, B or C is met in relation to the pension scheme
and an interest in property to which paragraph 37H has applied,
the pension scheme is to be treated for the purposes of the taxable
15
property provisions as acquiring, on the date on which the
Condition is met, each interest in property—
(a)
which it holds on that date, and
(b)
to which paragraph 37H has applied before that date.
      (2)
Condition A is that there is a change in the pension scheme’s
20
interest in the person who holds the interest in the property
directly such that, if the change had occurred immediately before
6th April 2006, the pension scheme would have been prohibited
from holding the interest in the person at that time.
      (3)
Condition B is that the property ceases to be used for the purposes
25
of the person’s property rental business.
      (4)
Condition C is that the property is occupied or used by a member
of the pension scheme or a person connected with such a member.
      (5)
For the purposes of Schedule 29A the total taxable amount in
relation to any unauthorised payment which the pension scheme
30
is treated as having made by reason of an acquisition of an interest
in property treated as made by virtue of this paragraph is—
(a)
the market value on the relevant date of the interest in the
property held by the person who holds it directly, or
(b)
if the interest in the property is a lease at a rent, the amount
35
of consideration that would be treated as given by the
person for the lease by virtue of paragraph 34 of Schedule
29A if it were assigned to the person on that date.”
Schedule 22
Section 161

Pension schemes: inheritance tax
40
Introductory
1
IHTA 1984 is amended as follows.

Finance (No.2) Bill
Schedule 22 — Pension schemes: inheritance tax
435

Dispositions
2
In section 12 (dispositions conferring retirement benefits), after subsection
(2) insert—
“(2A)
Subsection (2B) below applies where a person who is a member of a
registered pension scheme, and who has not reached the age of 75,
5
has omitted to exercise pension rights under the pension scheme
and, if the words “(or latest time)” were omitted from subsection (3)
of section 3 above,—
(a)
that subsection would have treated the person as having
made a disposition by reason of omitting to exercise the
10
pension rights, but
(b)
section 10 above would have prevented the disposition being
a transfer of value.
(2B)
Section 3(3) above does not actually treat the person as making a
disposition by reason of omitting to exercise the pension rights (at
15
the latest time when the person could have exercised them) unless
the condition in subsection (2C) below is satisfied.
(2C)
That condition is that—
(a)
the person makes an actual pensions disposition under the
pension scheme which is not prevented from being a transfer
20
of value by section 10 above within the period of two years
ending with the date of his death, and
(b)
it is not shown that, when he made the actual pensions
disposition, he had no reason to believe that he would die
within that period.
25
(2D)
A disposition treated by virtue of section 3(3) above as made by any
person who is a member of a registered pension scheme, and who
has not reached the age of 75, by reason of omitting to exercise
pension rights under the pension scheme is not a transfer of value to
the extent that it results in—
30
(a)
the provision of a lump sum death benefit or pension death
benefit (or both) to a relevant dependant, or
(b)
the making of a payment to a charity.
(2E)
A disposition made by a person who is a member of a registered
pension scheme, and who has reached the age of 75, is not a transfer
35
of value if the disposition consists in the person—
(a)
making an actual pensions disposition under the pension
scheme, or
(b)
omitting to exercise pension rights under the pension
scheme.
40
(2F)
For the purposes of this section—
(a)
a person omits to exercise pension rights under a pension
scheme if he does not become entitled to the whole or any
part of a pension or lump sum (or both) under the pension
scheme at a time when he was eligible to become so entitled
45
(whether or not he does become entitled to any other benefits
under the pension scheme); and

Finance (No.2) Bill
Schedule 22 — Pension schemes: inheritance tax
436

(b)
a person makes an actual pensions disposition under a
registered pension scheme if he makes a disposition within
section 3(1) above by doing anything in relation to, or to
rights under, the pension scheme.
(2G)
In this section—
5
“entitled” in relation to a pension or lump sum shall be
construed in accordance with section 165(3) or 166(2) of the
Finance Act 2004;
“lump sum death benefit” has the same meaning as in Part 4 of
that Act (see section 168(2) of that Act);
10
“pension” has the same meaning as in that Part of that Act (see
section 165(2) of that Act);
“pension death benefit” has the meaning given by section 167(2)
of that Act; and
“relevant dependant”, in relation to a person, means a
15
dependant (within the meaning given by paragraph 15 of
Schedule 28 to that Act) who is the person’s spouse or civil
partner immediately before his death or someone who is
financially dependent on the person at that time.”;

and, in the sidenote, for “retirement benefits” substitute “benefits under
20
pension scheme”.
Secured pension funds
3
In subsection (2) of section 151 (treatment of pension rights etc), insert at the
beginning “Subject to sections 151A and 151C below,”.
4
After that section insert—
25
“151A
Person dying with alternatively secured pension fund
(1)
This section applies where a member of a registered pension scheme
has an alternatively secured pension fund in respect of an
arrangement under the pension scheme immediately before his
death.
30
(2)
In determining for the purposes of this Act the value of his estate
immediately before his death he shall be treated as if he had been
beneficially entitled to property with a value equal to the relevant
amount.
(3)
The relevant amount is—
35
(a)
the aggregate of the amount of the sums and the value of the
assets forming part of the member’s alternatively secured
pension fund immediately before his death, less
(b)
the aggregate of the amount of the sums and the value of the
assets expended on dependants’ benefits within the period of
40
six months beginning with the end of the month in which his
death occurs.
(4)
For this purpose sums or assets are expended on dependants’
benefits at any time if they (or sums or assets directly or indirectly
deriving from them) are at that time—
45
(a)
applied towards the provision of a dependants’ scheme
pension for a relevant dependant,

Finance (No.2) Bill
Schedule 22 — Pension schemes: inheritance tax
437

(b)
applied towards the provision of a dependants’ annuity for a
relevant dependant,
(c)
designated as available for the payment of dependants’
unsecured pension to a relevant dependant, or
(d)
designated as available for the payment of dependants’
5
alternatively secured pension to a relevant dependant,

or if the sums (or sums directly or indirectly deriving from the sums
or assets) are at that time paid as a charity lump sum death benefit.
(5)
In this section—
“alternatively secured pension fund” has the same meaning as
10
in Part 4 of the Finance Act 2004 (see paragraph 11 of
Schedule 28 to that Act);
“charity lump sum death benefit” has the meaning given by
paragraph 18 of Schedule 29 to that Act;
“dependants’ alternatively secured pension” has the meaning
15
given by paragraph 19 of Schedule 28 to that Act;
“dependants’ annuity” has the same meaning as in Part 4 of that
Act (see paragraph 17 of that Schedule);
“dependants’ scheme pension” has the same meaning as in that
Part of that Act (see paragraph 16 of that Schedule);
20
“dependants’ unsecured pension” has the meaning given by
paragraph 18 of that Schedule; and
“relevant dependant”, in relation to a member of a registered
pension scheme who dies, means a dependant (within the
meaning of paragraph 15 of that Schedule) who—
25
(a)
is the person’s spouse or civil partner immediately
before his death; or
(b)
is financially dependent on the person at that time.
151B
Relevant dependant with pension fund inherited from member over
75
30
(1)
This section applies where—
(a)
a relevant dependant of a person who, immediately before
his death, was a member of a registered pension scheme has
a dependant’s unsecured pension fund, or a dependant’s
alternatively secured pension fund, in respect of an
35
arrangement under the pension scheme immediately before
his death or immediately before ceasing to be a relevant
dependant of the member,
(b)
the member had reached the age of 75 at the time of his death
and had an alternatively secured pension fund in respect of
40
an arrangement under the pension scheme immediately
before his death, and
(c)
sums or assets forming part of that fund were designated as
available for the payment of dependants’ unsecured pension,
or dependants’ alternatively secured pension, to the relevant
45
dependant within the period of six months beginning with
the end of the month in which the member’s death occurs.
(2)
Where this section applies tax shall be charged under this section.