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Finance (No.2) Bill


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

447

 

(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

interest indirectly once it has been acquired pursuant to

5

the contract,

(d)   

the property is residential property on that date, and

(e)   

improvement works on the property were begun after 5th

December 2005.

      (2)  

This paragraph also applies where—

10

(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,

(c)   

on that date the pension scheme holds the interest in the

15

property directly,

(d)   

the pension scheme acquired the interest before 5th

August 1991,

(e)   

the property is residential property on 6th April 2006, and

(f)   

improvement works on the property were begun after 5th

20

December 2005.

      (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—

25

(a)   

paragraph 37A does not apply in relation to the pension

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

30

the interest.

      (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

35

(b)   

a substantial amount of the works has been carried out

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,

40

(b)   

immediately before 6th April 2006 the pension scheme was

a retirement benefits scheme approved under section 590

of ICTA, and

(c)   

the pension scheme was approved under that section after

5th December 2005.

45

      (2)  

Paragraph 37A does not apply in relation to the pension scheme

and the interest in the property.

 

 

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

448

 

      (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

37F   (1)  

This paragraph applies where on or after 6th April 2006 an

5

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

property directly.

10

      (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.

      (3)  

Those conditions are that—

15

(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,

(c)   

at no time during the period beginning with that date and

20

ending immediately before the acquisition of the interest in

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

25

(d)   

the person acquires the interest in the property so that the

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.

30

37G   (1)  

Where Condition A or B is met in relation to the pension scheme

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.

35

      (2)  

Condition A is that there is a change in the pension scheme’s

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.

40

      (3)  

Condition B is that the property ceases to be used for the purposes

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

45

relation to any unauthorised payment which the pension scheme

is treated as having made by reason of the acquisition is the

 

 

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

449

 

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

taxable property consisting of residential property because a

5

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

the interest in the property if the conditions in sub-paragraph (3)

10

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,

(b)   

immediately before that date the pension scheme was not

15

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

in residential property for the purposes of that business,

20

(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

person been such that, if it had held that interest in the

person immediately before 6th April 2006, it would have

25

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

(f)   

after the acquisition of the interest in the property, the

property is not occupied or used by a member of the

30

pension scheme or a person connected with such a

member.

      (4)  

This paragraph is subject to paragraph 37I.

      (5)  

Section 839 of ICTA (connected persons) applies for the purposes

of this paragraph.

35

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

property provisions as acquiring, on the date on which the

Condition is met, each interest in property—

40

(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

interest in the person who holds the interest in the property

directly such that, if the change had occurred immediately before

45

6th April 2006, the pension scheme would have been prohibited

from holding the interest in the person at that time.

 

 

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

450

 

      (3)  

Condition B is that the property ceases to be used for the purposes

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

5

relation to any unauthorised payment which the pension scheme

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

10

(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

person for the lease by virtue of paragraph 34 of Schedule

29A if it were assigned to the person on that date.”

Schedule 22

15

Section 160

 

Pension schemes: inheritance tax

Introductory

1          

IHTA 1984 is amended as follows.

Dispositions

2          

In section 12 (dispositions conferring retirement benefits), after subsection

20

(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,

has omitted to exercise pension rights under the pension scheme

and, if the words “(or latest time)” were omitted from subsection (3)

25

of section 3 above,—

(a)   

that subsection would have treated the person as having

made a disposition by reason of omitting to exercise the

pension rights, but

(b)   

section 10 above would have prevented the disposition being

30

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

the latest time when the person could have exercised them) unless

the condition in subsection (2C) below is satisfied.

35

(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

of value by section 10 above within the period of two years

ending with the date of his death, and

40

(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.

 

 

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

451

 

(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—

5

(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

10

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.

15

(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

20

(whether or not he does become entitled to any other benefits

under the pension scheme); and

(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

25

rights under, the pension scheme.

(2G)   

In this section—

“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;

30

“lump sum death benefit” has the same meaning as in Part 4 of

that Act (see section 168(2) of that Act);

“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)

35

of that Act; and

“relevant dependant”, in relation to a person, means a

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

40

financially dependent on the person at that time.”;

           

and, in the sidenote, for “retirement benefits” substitute “benefits under

pension scheme”.

Secured pension funds

3          

In subsection (2) of section 151 (treatment of pension rights etc) insert at the

45

beginning “Subject to sections 151A and 151C below,”.

 

 

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

452

 

4          

After that section insert—

“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

5

death.

(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.

10

(3)   

The relevant amount is—

(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

15

assets expended on dependants’ benefits within the period of

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

20

deriving from them) are at that time—

(a)   

applied towards the provision of a dependants’ scheme

pension for a relevant dependant,

(b)   

applied towards the provision of a dependants’ annuity for a

relevant dependant,

25

(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’

alternatively secured pension to a relevant dependant,

   

or if the sums (or sums directly or indirectly deriving from the sums

30

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

in Part 4 of the Finance Act 2004 (see paragraph 11 of

Schedule 28 to that Act);

35

“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

given by paragraph 19 of Schedule 28 to that Act;

“dependants’ annuity” has the same meaning as in Part 4 of that

40

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);

“dependants’ unsecured pension” has the meaning given by

paragraph 18 of that Schedule; and

45

“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—

 

 

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

453

 

(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

5

(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

10

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

15

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

20

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.

(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

25

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

ceased to be a relevant dependant of the member.

(4)   

But where tax is chargeable under this section by reason of the death

30

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

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

35

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—

(a)   

the amount mentioned in subsection (3) above (as reduced

under subsection (4) above) had been included in the value

40

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.

(6)   

In this section—

“alternatively secured pension fund” has the same meaning as

45

in Part 4 of the Finance Act 2004 (see paragraph 11 of

Schedule 28 to that Act);

“dependants’ alternatively secured pension” has the meaning

given by paragraph 19 of that Schedule;

 

 

 
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