Finance (No. 3) Bill

Session 2010 - 11
Internet Publications
Other Bills before Parliament

Finance (No. 3) Bill

Finance (No. 3) Bill
Schedule 16 — Benefits under pension schemes
Part 1 — Changes to benefits available under pension schemes etc
243

(a)
relievable pension contributions paid by or on behalf of the
dependant, or
(b)
contributions paid in respect of the dependant by an
employer of the dependant.
Valid and accepted declarations
5
24G   (1)
A declaration is “valid” if it complies with such requirements as
may be prescribed by regulations made by the Commissioners for
Her Majesty’s Revenue and Customs.
      (2)
A declaration is accepted by the scheme administrator of a
registered pension scheme if, as a result of the making of the
10
declaration, the dependant becomes eligible to receive payments
of dependants’ drawdown pension in respect of an arrangement
under the scheme which, but for the application of section
167(2A), would be unauthorised member payments.”
Foreign pensions: temporary non-residents
15
21    (1)
In Part 9 of ITEPA 2003 (pension income), Chapter 4 (foreign pensions:
general rules) is amended as follows.
      (2)
In section 574 (“pension”: interpretation)—
(a)
for subsection (1) substitute—
“(1)
For the purposes of this Chapter “pension” includes—
20
(a)
an annuity under, or purchased with sums or assets
held for the purposes of, or representing acquired
rights under, a relevant non-UK scheme or an
overseas pension scheme,
(b)
an amount paid under a relevant non-UK scheme or
25
an overseas pension scheme which, if the scheme
were a registered pension scheme, would be income
withdrawal or dependants’ income withdrawal
(within the meaning of paragraphs 7 and 21 of
Schedule 28 to FA 2004), and
30
(c)
if conditions A and B are met, a pension which is paid
voluntarily or is capable of being discontinued.”;
(b)
for subsection (4) substitute—
“(4)
In this section—
“office” includes in particular any position which has an
35
existence independent of the person who holds it and
may be filled by successive holders;
“overseas pension scheme” has the same meaning as in
Part 4 of FA 2004 (see section 150(7) of that Act);
“relevant non-UK scheme” is to be read in accordance
40
with paragraph 1(5) of Schedule 34 to FA 2004.”
      (3)
In section 575(1) (taxable pension income), at the end insert “and section
576A”.

Finance (No. 3) Bill
Schedule 16 — Benefits under pension schemes
Part 1 — Changes to benefits available under pension schemes etc
244

      (4)
After section 576 insert—
“576A
Temporary non-residents
(1)
If this section applies in relation to a tax year, any relevant non-UK
income withdrawal under a relevant non-UK scheme which—
(a)
is paid to a person in respect of a flexible drawdown
5
arrangement relating to the person under the scheme,
(b)
is paid in a year of non-residence, and
(c)
would not, apart from this section, be chargeable to tax under
this Part,

is to be treated for the purposes of section 575 as if it arose in that tax
10
year.
(2)
This section applies in relation to a tax year if—
(a)
the person satisfies the residence requirements for the tax
year (“the year of return”),
(b)
the person did not satisfy those requirements for one or more
15
tax years immediately before the year of return but did
satisfy those requirements for an earlier tax year,
(c)
there are fewer than 5 tax years between—
(i)
the last tax year before the year of return for which the
person satisfied those requirements (“the year of
20
departure”), and
(ii)
the year of return, and
(d)
the person satisfied those requirements for at least 4 out of
the 7 tax years immediately before the year of departure.
(3)
For the purposes of this section—
25
(a)
a person satisfies the residence requirements for a tax year if
the person—
(i)
is resident in the United Kingdom during that year,
and
(ii)
is not Treaty non-resident at any time in that year;
30
(b)
a person is Treaty non-resident at any time if, at that time, the
person falls to be regarded as resident in a territory outside
the United Kingdom for the purposes of double taxation
relief arrangements having effect at that time.
(4)
If—
35
(a)
section 809B, 809D or 809E of ITA 2007 (remittance basis)
applies to the person for the year of return, and
(b)
the person—
(i)
is not domiciled in the United Kingdom in that year,
or
40
(ii)
is not ordinarily resident in the United Kingdom in
that year,

any amounts of relevant non-UK income withdrawal falling within
subsection (1) which were remitted in a year of non-residence are
treated as remitted in the year of return.
45
(5)
This section does not apply to any relevant non-UK income
withdrawal paid to or in respect of a relieved member of a relevant

Finance (No. 3) Bill
Schedule 16 — Benefits under pension schemes
Part 1 — Changes to benefits available under pension schemes etc
245

non-UK scheme unless the payment is referable to the member’s UK
tax-relieved fund under the scheme.
(6)
This section does not apply to any relevant non-UK income
withdrawal paid to or in respect of a transfer member of a relevant
non-UK scheme unless the payment is referable to the member’s
5
relevant transfer fund under the scheme.
(7)
Nothing in any double taxation relief arrangements is to be read as
preventing the person from being chargeable to income tax in respect
of any relevant non-UK income withdrawal treated by virtue of this
section as arising in the year of return (or as preventing a charge to
10
that tax from arising as a result).
(8)
In this section—
“double taxation relief arrangements” means arrangements that
have effect under section 2(1) of TIOPA 2010;
“flexible drawdown arrangement” means an arrangement to
15
which section 165(3A) or 167(2A) of FA 2004 applies;
“member’s relevant transfer fund” has the same meaning as in
Schedule 34 to FA 2004 (see paragraph 4(2) of that Schedule);
“member’s UK tax-relieved fund” has the same meaning as in
that Schedule (see paragraph 3(2));
20
“relevant non-UK income withdrawal”, in relation to a relevant
non-UK scheme, means an amount paid under the scheme
which, if the scheme were a registered pension scheme,
would be income withdrawal or dependants’ income
withdrawal (within the meaning of paragraphs 7 and 21 of
25
Schedule 28 to FA 2004);
“relevant non-UK scheme” is to be read in accordance with
paragraph 1(5) of Schedule 34 to FA 2004;
“relieved member” and “transfer member” have the same
meaning as in that Schedule (see paragraph 1(7) and (8));
30
“year of non-residence” means any tax year which falls between
the year of departure and the year of return.”
Pensions under registered pension schemes: temporary non-residents
22    (1)
In Part 9 of ITEPA 2003 (pension income), Chapter 5A (pensions under
registered pension schemes) is amended as follows.
35
      (2)
In section 579B (taxable pension income), at the end insert—

“This is subject to section 579CA.”
      (3)
After section 579C insert—
“579CA
Temporary non-residents
(1)
If this section applies in relation to a tax year, any income withdrawal
40
or dependants’ income withdrawal under the registered pension
scheme which—
(a)
is paid to a person in respect of a flexible drawdown
arrangement relating to the person under the scheme,
(b)
is paid in a year of non-residence, and
45

Finance (No. 3) Bill
Schedule 16 — Benefits under pension schemes
Part 1 — Changes to benefits available under pension schemes etc
246

(c)
would not, apart from this section, be chargeable to tax under
this Part,

is to be treated for the purposes of section 579B as if it accrued in that
tax year.
(2)
This section applies in relation to a tax year if—
5
(a)
the person satisfies the residence requirements for the tax
year (“the year of return”),
(b)
the person did not satisfy those requirements for one or more
tax years immediately before the year of return but did
satisfy those requirements for an earlier tax year,
10
(c)
there are fewer than 5 tax years between—
(i)
the last tax year before the year of return for which the
person satisfied those requirements (“the year of
departure”), and
(ii)
the year of return, and
15
(d)
the person satisfied those requirements for at least 4 out of
the 7 tax years immediately before the year of departure.
(3)
For the purposes of this section—
(a)
a person satisfies the residence requirements for a tax year if
the person—
20
(i)
is resident in the United Kingdom during that year,
and
(ii)
is not Treaty non-resident at any time in that year;
(b)
a person is Treaty non-resident at any time if, at that time, the
person falls to be regarded as resident in a territory outside
25
the United Kingdom for the purposes of double taxation
relief arrangements having effect at that time.
(4)
Nothing in any double taxation relief arrangements is to be read as
preventing the person from being chargeable to income tax in respect
of any income withdrawal or dependants’ income withdrawal
30
treated by virtue of this section as accruing in the year of return (or
as preventing a charge to that tax from arising as a result).
(5)
In this section—
“double taxation relief arrangements” means arrangements that
have effect under section 2(1) of TIOPA 2010;
35
“flexible drawdown arrangement” means an arrangement to
which section 165(3A) or 167(2A) of FA 2004 applies;
“year of non-residence” means any tax year which falls between
the year of departure and the year of return.”
      (4)
For section 579D (interpretation) substitute—
40
“579D
Interpretation
In this Chapter—
“dependants’ income withdrawal” has the meaning given by
paragraph 21 of Schedule 28 to FA 2004;
“income withdrawal” has the meaning given by paragraph 7 of
45
that Schedule;
“pension under a registered pension scheme” includes—

Finance (No. 3) Bill
Schedule 16 — Benefits under pension schemes
Part 1 — Changes to benefits available under pension schemes etc
247

(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.”
5
Lump sums to be payable to persons aged 75 or over
23
Part 1 of Schedule 29 to FA 2004 (lump sum rule) is amended as follows.
24    (1)
Paragraph 1 (pension commencement lump sum) is amended as follows.
      (2)
In sub-paragraph (1)—
(a)
omit paragraph (a);
10
(b)
in paragraph (b), after “available” insert “(but see sub-paragraph
(3A))”.
      (3)
After sub-paragraph (3) insert—
   “(3A)
In a case where—
(a)
the member becomes entitled to a lump sum before
15
reaching the age of 75, but
(b)
it is not paid to the member until after the member has
reached that age,

the reference in sub-paragraph (1)(b) to the lump sum being paid
is to be read as a reference to the member becoming entitled to it.”
20
      (4)
In sub-paragraph (6), for the words from “even though” to the end substitute
“even though the condition in sub-paragraph (1)(c) is not met.”
25
In paragraph 2 (pension commencement lump sum: calculation of permitted
maximum), after sub-paragraph (7) insert—
   “(7A)
For the purposes of determining the available portion of the
25
member’s lump sum allowance—
(a)
the fact that benefit crystallisation event 5 or benefit
crystallisation event 5B has occurred in relation to the
member is to be disregarded, and
(b)
anything which, but for paragraph 2 or 15A of Schedule 32,
30
would have been a benefit crystallisation event is to be
treated as if it were such an event.”
26
In paragraph 3 (pension commencement lump sum: calculation of
applicable amount), in sub-paragraph (7), for the definition of “AC”
substitute—
35
“AC is—
(a)
in a case where the member becomes entitled to the
pension before reaching the age of 75, the amount
crystallised by reason of the member becoming
entitled to the pension, disregarding paragraph 3 of
40
Schedule 32, and
(b)
in a case where the member becomes entitled to the
pension after reaching that age, the amount that
would have been so crystallised (disregarding that
paragraph) but for paragraph 2 of that Schedule.”
45

Finance (No. 3) Bill
Schedule 16 — Benefits under pension schemes
Part 1 — Changes to benefits available under pension schemes etc
248

27    (1)
Paragraph 3A (recycling of pension commencement lump sums) is amended
as follows.
      (2)
In sub-paragraph (2), for “sub-paragraphs (3) and (4)” substitute “sub-
paragraphs (3) to (4A)”.
      (3)
After sub-paragraph (4) insert—
5
   “(4A)
This paragraph does not apply if—
(a)
the member has reached the age of 75 when the
contributions are paid as mentioned in sub-paragraph
(2)(a), and
(b)
the contributions are not paid by an employer of the
10
member.”
      (4)
For sub-paragraph (5) substitute—
    “(5)
“The appropriate amount” is—
(a)
where the member becomes entitled to the lump sum
before reaching the age of 75, so much of the amount
15
crystallised by the benefit crystallisation event constituted
by its payment (or the amount that would have been so
crystallised but for paragraph 15A of Schedule 32) as does
not exceed the amount of the member’s lifetime allowance
which is available on it;
20
(b)
where the member becomes entitled to the lump sum after
reaching that age, the amount of the lump sum.”
28    (1)
Paragraph 4 (serious ill-health lump sum) is amended as follows.
      (2)
In sub-paragraph (1)—
(a)
at the end of paragraph (c) insert “and”;
25
(b)
omit paragraph (e) (and the “and” before it).
      (3)
After sub-paragraph (2) insert—
    “(3)
For the purposes of sub-paragraph (2)—
(a)
the fact that benefit crystallisation event 5 or benefit
crystallisation event 5B has occurred in relation to the
30
member is to be disregarded, and
(b)
anything which, but for paragraph 2 of Schedule 32, would
have been a benefit crystallisation event is to be treated as
if it were such an event.”
29
In paragraph 7 (trivial commutation lump sum), in sub-paragraph (1)(e),
35
omit “but has not reached the age of 75”.
30
In paragraph 10(1) (winding-up lump sum)—
(a)
at the end of paragraph (d) insert “and”;
(b)
omit paragraph (f) (and the “and” before it).
31
In paragraph 12 (interpretation of Part 1), after sub-paragraph (1) insert—
40
   “(1A)
For the purposes of determining whether all or part of the
member’s lifetime allowance is available—
(a)
the fact that benefit crystallisation event 5 or benefit
crystallisation event 5B has occurred in relation to the
member is to be disregarded, and
45

Finance (No. 3) Bill
Schedule 16 — Benefits under pension schemes
Part 1 — Changes to benefits available under pension schemes etc
249

(b)
anything which, but for paragraph 2 or 15A of Schedule 32,
would have been a benefit crystallisation event is to be
treated as if it were such an event.”
Lump sum death benefits to be payable to persons aged 75 or over
32
Part 2 of Schedule 29 to FA 2004 (lump sum death benefit rule) is amended
5
as follows.
33    (1)
Paragraph 13 (defined benefits lump sum death benefit) is amended as
follows.
      (2)
The existing text becomes sub-paragraph (1).
      (3)
In that sub-paragraph—
10
(a)
omit paragraph (a);
(b)
omit paragraph (c) (but not the “and” after it);
(c)
at the end insert—

“But, in a case where the member had not reached the age
of 75 at the date of the member’s death, a lump sum death
15
benefit is a defined benefits lump sum death benefit only if
it is paid before the end of the relevant two-year period.”
      (4)
After that sub-paragraph insert—
    “(2)
“The relevant two-year period” means the period of two years
beginning with the earlier of the day on which the scheme
20
administrator first knew of the member’s death and the day on
which the scheme administrator could first reasonably be
expected to have known of it.”
34    (1)
Paragraph 14 (pension protection lump sum death benefit) is amended as
follows.
25
      (2)
In sub-paragraph (1), omit paragraph (a).
      (3)
In sub-paragraph (3), for the definition of “AC” substitute—
“AC is—
(a)
in a case where the member became entitled to the
pension before reaching the age of 75, the amount
30
crystallised by reason of the member becoming
entitled to the pension, and
(b)
in a case where the member became entitled to the
pension after having reached that age, the amount
that would have been so crystallised but for
35
paragraph 2 of Schedule 32,”.
35    (1)
Paragraph 15 (uncrystallised funds lump sum death benefit) is amended as
follows.
      (2)
In sub-paragraph (1)—
(a)
omit paragraphs (a) and (c);
40
(b)
at the end of paragraph (d) insert “, and
(e)
it is not a charity lump sum death benefit.”;