Finance (No.2) Bill

House of Commons

Session 2005 - 06
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Finance (No.2) Bill

Finance (No.2) Bill
Schedule 22 — Pension schemes: inheritance tax
438

(3)
The amount on which tax is charged under this section shall be the
aggregate of the amount of the sums and the value of the assets
forming part of the dependant’s unsecured pension fund, or the
dependant’s alternatively secured pension fund, in respect of the
arrangement immediately before the relevant dependant died or
5
ceased to be a relevant dependant of the member.
(4)
But where tax is chargeable under this section by reason of the death
of the relevant dependant, that amount is reduced by so much of
sums forming part of the dependant’s unsecured pension fund, or
the dependant’s alternatively secured pension fund, (or sums
10
directly or indirectly deriving from sums or assets forming part of
that fund) as are paid to a charity within the period of six months
beginning with the end of the month in which his death occurs.
(5)
Tax charged under this section shall be charged at the rate or rates at
which it would have been charged on the death of the member if—
15
(a)
the amount mentioned in subsection (3) above (as reduced
under subsection (4) above) had been included in the value
transferred by the chargeable transfer made on his death, and
(b)
the amount on which the tax is charged had formed the
highest part of that value.
20
(6)
In this section—
“alternatively secured pension fund” has the same meaning as
in Part 4 of the Finance Act 2004 (see paragraph 11 of
Schedule 28 to that Act);
“dependants’ alternatively secured pension” has the meaning
25
given by paragraph 19 of that Schedule;
“dependant’s alternatively secured pension fund” has the same
meaning as in that Part of that Act (see paragraph 25 of that
Schedule);
“dependants’ unsecured pension” has the meaning given by
30
paragraph 18 of that Schedule;
“dependant’s unsecured pension fund” has the same meaning
as in that Part of that Act (see paragraph 22 of that Schedule);
and
“relevant dependant”, in relation to a member of a registered
35
pension scheme who dies, means a dependant (within the
meaning of paragraph 15 of that Schedule) who—
(a)
is the person’s spouse or civil partner immediately
before his death; or
(b)
is financially dependent on the person at that time.
40
151C
Dependant dying with other pension fund
(1)
This section applies where—
(a)
a dependant of a member of a registered pension scheme has
a dependant’s alternatively secured pension fund in respect
of an arrangement under the pension scheme immediately
45
before his death, and
(b)
section 151B above does not apply.
(2)
In determining for the purposes of this Act the value of the
dependant’s estate immediately before his death he shall be treated

Finance (No.2) Bill
Schedule 22 — Pension schemes: inheritance tax
439

as if he had been beneficially entitled to property with a value equal
to the relevant amount.
(3)
The relevant amount is—
(a)
the aggregate of the amount of the sums and the value of the
assets forming part of the dependant’s alternatively secured
5
pension fund immediately before his death, less
(b)
so much of sums forming part of the dependant’s
alternatively secured pension fund (or sums directly or
indirectly deriving from sums or assets forming part of that
fund) as are paid as a charity lump sum death benefit within
10
the period of six months beginning with the end of the month
in which his death occurs.
(4)
In this section—
“charity lump sum death benefit” has the meaning given by
paragraph 18 of Schedule 29 to the Finance Act 2004;
15
“dependant” has the meaning given by paragraph 15 of that
Schedule 28 to that Act; and
“dependant’s alternatively secured pension fund” has the same
meaning as in Part 4 of that Act (see paragraph 25 of Schedule
28 to that Act).”
20
Liability
5     (1)
Section 200 (liability for tax: transfer on death) is amended as follows.
      (2)
In subsection (1), after “any person are” insert “(subject to subsection (1A)
below)”.
      (3)
After that subsection insert—
25
“(1A)
The person liable for tax chargeable by virtue of section 151A or 151C
above in relation to any registered pension scheme is the scheme
administrator of the pension scheme.”
6
In section 210 (liability: pension rights etc) re-number the existing provision
as subsection (1) of that section and insert after it—
30
“(2)
The person liable for tax chargeable under section 151B above is the
scheme administrator of the registered pension scheme.”
Delivery of accounts
7     (1)
Section 216 (delivery of accounts) is amended as follows.
      (2)
in subsection (1), after paragraph (bc) insert—
35
“(bca)
is liable under section 200(1A) or 210(2) above for tax in
respect of any amount, or would be so liable if tax were
chargeable in respect of that amount, or”.
      (3)
In subsection (3)(a), after “death” insert “(or would do apart from section
151A(3)(b) or 151C(3)(b) above)”.
40
      (4)
In subsection (4), insert at the end “(or would be apart from section
151A(3)(b), 151C(3)(b) or 151B(4) above)”.

Finance (No.2) Bill
Schedule 22 — Pension schemes: inheritance tax
440

      (5)
In subsection (6), after paragraph (ab) insert—
“(ac)
in the case of an account to be delivered by the scheme
administrator of a registered pension scheme, before the
expiration of the period of twelve months from the end of the
month in which the death occurs or the person ceases to be a
5
relevant dependant of the member;”.
Payment
8
In section 226(4) (payment), for “or 126” substitute “, 126 or 151B”.
Interpretation
9     (1)
Section 272 (general interpretation) is amended as follows.
10
      (2)
After the definition of “local authority” insert—
““member”, in relation to a registered pension scheme, has the
same meaning as in Part 4 of the Finance Act 2004 (see section
151 of that Act);”.
      (3)
After the definition of “reversionary interest” insert—
15
““scheme administrator”, in relation to a registered pension
scheme, has the same meaning as in Part 4 of the Finance Act
2004 (see sections 270 to 274 of that Act);”.
Rates of tax
10
In Schedule 2 (provisions applying on reduction of tax), after paragraph 6
20
insert—
“Relevant dependant with pension fund inherited from member over 75
6A
Where tax is chargeable under section 151B of this Act on an
occasion after a reduction and the rate or rates at which it is
charged fall to be determined by reference to the death of a person
25
which occurred before that reduction (or before that and one or
more other reductions) that section applies as if the Table in
Schedule 1 as substituted by that reduction (or by the most recent
of those reductions) had been in force at the time of that person’s
death.”
30
Transitional
11
The reference in section 12(2A) of IHTA 1984 (inserted by paragraph 2) to a
member of a registered pension scheme having omitted to exercise pension
rights under the pension scheme includes an omission before 6th April 2006
in relation to a pension scheme which on that date becomes a registered
35
pension scheme.

Finance (No.2) Bill
Schedule 23 — Pension schemes etc: miscellaneous
441

Schedule 23
Section 162

Pension schemes etc: miscellaneous
Introduction
1
Part 4 of FA 2004 (pension schemes etc) is amended as follows.
Meaning of “pension credit member” etc: person dying before discharge of liability
5
2
In section 151(5) (pension credit members), insert at the end “; and, if a
person dies having become entitled to pension credits but without having
rights attributable to them, the person is to be treated as having acquired,
immediately before death, the rights by virtue of which the liability in
respect of the pension credits is subsequently discharged.”
10
Unauthorised payments: former members and sponsoring employers etc
3     (1)
Section 160 (payments by registered pension schemes) is amended as
follows.
      (2)
In subsection (1), before “member” insert “person who is or has been a”.
      (3)
In subsection (2)—
15
(a)
in paragraphs (a) and (b), before “member” insert “person who is or
has been a”, and
(b)
in paragraph (b), for “section 172, 173 or 174” substitute “this Part”.
      (4)
In subsections (3) and (4)(a) and (b), before “sponsoring” insert “person who
is or has been a”.
20
4     (1)
Section 161 (meaning of “payment” etc) is amended as follows.
      (2)
In subsection (5)—
(a)
before “member”, in the first, third and last places, insert “person
who is or has been a”, and
(b)
for “a member at the date of the member’s” substitute “such a person
25
at the date of the person’s”.
      (3)
In subsections (6) and (7)—
(a)
before “member”, in the first and last places, insert “person who is or
has been a”, and
(b)
for “a member at the date of the member’s” substitute “such a person
30
at the date of the person’s”.
5
In section 162(3) and (4) (meaning of “loan”)—
(a)
before “member”, in the first, second and last places, insert “person
who is or has been a”, and
(b)
for “a member or sponsoring employer of the pension scheme”
35
substitute “such a person”.
6
In section 164 (authorised member payments)—
(a)
before “member” insert “person who is or has been a”,
(b)
in paragraph (a), after “benefit rules” insert “to be paid to or in
respect of a member”, and
40

Finance (No.2) Bill
Schedule 23 — Pension schemes etc: miscellaneous
442

(c)
in paragraph (b), after “benefit rule” insert “to be paid to or in respect
of a member”.
7
In section 171(1) and (4) (scheme administration member payments), before
“member” insert “person who is or has been a”.
8     (1)
Section 173 (benefits) is amended as follows.
5
      (2)
In subsection (1)—
(a)
before “member”, in the first place, insert “person who is or has been
a”,
(b)
for “member”, in the second place, substitute “person”, and
(c)
for “member’s” substitute “person’s”.
10
      (3)
In subsection (3)—
(a)
for “member”, in the first place, substitute “person”, and
(b)
for “member’s” substitute “person’s”.
      (4)
In subsection (4)—
(a)
before “member”, in the first place, insert “person who is or has been
15
a”,
(b)
for “member’s”, in each place, substitute “person’s”.
      (5)
In subsection (7)(b)—
(a)
for “member’s”, in both places, substitute “person’s”, and
(b)
for “member”, in the first place, substitute “person”.
20
      (6)
In subsection (9)(a), before “member” insert “person who is or has been a”.
9     (1)
Section 174 (value shifting) is amended as follows.
      (2)
In subsection (1)—
(a)
before “member”, in the first place, insert “person who is or has been
a”, and
25
(b)
for “member”, in each other place, substitute “person”.
      (3)
In subsection (2)—
(a)
for “member’s” substitute “person’s”, and
(b)
for “member”, in both places, substitute “person”.
10
In section 175 (authorised employer payments), before “sponsoring” insert
30
“person who is or has been a”.
11
In section 179(1), (5) and (6) (authorised employer loan), before “sponsoring”
insert “person who is or has been a”.
12
In section 180(1) and (4) (scheme administration employer payments),
before “sponsoring” insert “person who is or has been a”.
35
13
In section 181(1) (value shifting)—
(a)
before “sponsoring employer”, in the first place, insert “person who
is or has been a”, and
(b)
for “sponsoring employer”, in each other place, substitute “person”.
14
In section 208(2) (unauthorised payments charge)—
40

Finance (No.2) Bill
Schedule 23 — Pension schemes etc: miscellaneous
443

(a)
in paragraph (a), for the words after “member payment” substitute
“made to or in respect of a person before the person’s death, is the
person,”,
(b)
in paragraph (b), for “after the member’s” substitute “in respect of a
person after the person’s”, and
5
(c)
in paragraph (c), for “sponsoring employer” substitute “person”.
15
In section 209(3) (unauthorised payments surcharge)—
(a)
in paragraph (a), for the words after “member payment” substitute
“made to or in respect of a person before the person’s death, is the
person,”,
10
(b)
in paragraph (b), for “after the member’s” substitute “in respect of a
person after the person’s”, and
(c)
in paragraph (c), for “sponsoring employer” substitute “person”.
16    (1)
Section 210 (surchargeable unauthorised member payments) is amended as
follows.
15
      (2)
In subsection (1), for “in respect of an arrangement relating to a member
under” substitute “to or in respect of a person who is or has been a member
of”.
      (3)
In subsections (2), (4), (5) and (8), for “in respect of the arrangement”
substitute “to or in respect of the person”.
20
      (4)
In subsection (9), in the definition of “VR”, for the words after “equal to the”
substitute “aggregate of the value of the member’s rights under
arrangements relating to the member under the pension scheme when the
unauthorised payment is made (or, if the unauthorised member payment is
made after the member has died or has otherwise ceased to be a member of
25
the pension scheme, at the date when the member died or otherwise ceased
to be a member).”
      (5)
In subsection (10), for “the arrangement on that” substitute “an arrangement
on any”.
17
In section 211(1) (valuation of crystallised rights), for “the arrangement”, in
30
the first place, substitute “an arrangement”.
18
In section 212(3) (valuation of uncrystallised rights), for “the arrangement”,
in the first place, substitute “an arrangement”.
19    (1)
Section 213 (surchargeable unauthorised employer payments) is amended
as follows.
35
      (2)
In subsection (1), before “sponsoring” insert “person who is or has been a”.
      (3)
In subsections (2), (4), (5) and (8), for “employer” substitute “person”.
“Bridging” pensions
20    (1)
Paragraph 2 of Schedule 28 (scheme pension) is amended as follows.
      (2)
In sub-paragraph (4), for paragraph (c) substitute—
40
“(c)
a reduction in the rate of the pension, taking effect at a time
not earlier than when the member reaches the age of 60
and not later than when the member reaches the age of 65,
which does not exceed the relevant state retirement

Finance (No.2) Bill
Schedule 23 — Pension schemes etc: miscellaneous
444

pension rate at that time (or the pension ceasing to be
payable at such a time if at that time that rate is greater
than the rate of the pension),”.
      (3)
For sub-paragraph (5) substitute—
    “(5)
For the purposes of sub-paragraph (4)(c) “the relevant state
5
retirement pension rate” at any time—
(a)
in a case where an employment of the member is or has
been contracted-out employment by reference to the
pension scheme, is 125% of the rate of the basic pension at
that time, and
10
(b)
otherwise, is 250% of that rate,

unless the Treasury by regulations prescribe a higher rate (in
which case it is that higher rate).
     (5A)
For the purposes of sub-paragraph (5)—
(a)
for the meaning of “contracted-out employment” see
15
section 8(1) of the Pension Schemes Act 1993 or section 4(1)
of the Pension Schemes (Northern Ireland) Act 1993), and
(b)
“the basic pension” means the basic pension specified in
section 44 of SSCBA 1992 or section 44 of SSCB(NI)A 1992.”
      (4)
In sub-paragraph (8), for “(4)(e) and (h)” substitute “(4)(e) or (h) or (5)”.
20
21
In paragraph 1(4)(a) of Schedule 29 (pension commencement lump sum:
excluded lump sum), for “when the member becomes entitled to state
retirement pension” substitute “at a time not earlier than when the member
reaches the age of 60 and not later than when the member reaches the age of
65”.
25
Pension commencement lump sum: scheme pensions under money purchase arrangements
22    (1)
Paragraph 3 of Schedule 29 (pension commencement lump sum: applicable
amount) is amended as follows.
      (2)
In sub-paragraph (6), after “pension” insert “under a defined benefits
arrangement”.
30
      (3)
After sub-paragraph (7) insert—
   “(7A)
Where the member becomes entitled to a scheme pension under a
money purchase arrangement, the applicable amount is one third
of the scheme pension purchase price.
     (7B)
“The scheme pension purchase price” is the aggregate of—
35
(a)
the amount of such of the sums held for the purposes of the
pension scheme, and
(b)
the market value of such of the assets held for the purposes
of the pension scheme,

as are applied in (or in connection with) the purchase or provision
40
of the scheme pension and any related dependants’ scheme
pension, but subject to sub-paragraph (8).
     (7C)
For the purposes of this Part a dependants’ scheme pension is
related to a scheme pension payable to a member of a registered
pension scheme if—
45