Finance (No. 3) Bill

Session 2010 - 11
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Finance (No. 3) Bill

Finance (No. 3) Bill
Schedule 17 — Annual allowance charge
Part 1 — Amendments
271

the words “if that provision does not increase any person’s liability to tax”
were omitted.
Application of rules of pension schemes
109   (1)
The trustees or managers of a registered pension scheme may make any
payment under the scheme which, by virtue of the amendments made by
5
this Schedule, is an authorised member payment (within the meaning of
section 164 of FA 2004), despite any provision of the rules of the pension
scheme (however framed) prohibiting the making of such a payment.
      (2)
In the case of a personal pension scheme within the meaning of section 1 of
the Pension Schemes Act 1993, nothing in subsection (1) of section 28 of that
10
Act (ways of giving effect to protected rights) is to be taken to prevent the
trustees or managers of the scheme from giving effect to the protected rights
of a member of the scheme in the way provided for by subsection (1A) of that
section.
      (3)
In the case of a personal pension scheme within the meaning of section 1 of
15
the Pension Schemes (Northern Ireland) Act 1993, nothing in subsection (1)
of section 24 of that Act (ways of giving effect to protected rights) is to be
taken to prevent the trustees or managers of the scheme from giving effect
to the protected rights of a member of the scheme in the way provided for
by subsection (1A) of that section.
20
Schedule 17
Section 66

Annual allowance charge
Part 1
Amendments
1
Part 4 of FA 2004 (pension schemes etc) is amended as follows.
25
2
In section 172D(4)(b) (limit on increase in benefits), for “236” substitute
“236A”.
3     (1)
Section 227 (annual allowance charge) is amended as follows.
      (2)
Omit subsections (2) and (3).
      (3)
In subsection (4), for “rate of 40%” substitute “appropriate rate”.
30
      (4)
After that subsection insert—
“(4A)
The appropriate rate is—
(a)
the basic rate in relation to so much (if any) of the excess as,
when added to the individual’s reduced net income for the
tax year, does not exceed the basic rate limit for the tax year,
35
(b)
the higher rate in relation to so much (if any) of the excess as,
when so added, exceeds the basic rate limit for the tax year
but does not exceed the higher rate limit for the tax year, and

Finance (No. 3) Bill
Schedule 17 — Annual allowance charge
Part 1 — Amendments
272

(c)
the additional rate in relation to so much (if any) of the excess
as, when so added, exceeds the higher rate limit for the tax
year.
(4B)
The individual’s reduced net income for the tax year is the amount
after taking Step 3 in section 23 of ITA 2007 in the case of the
5
individual for the tax year.
(4C)
Where the basic rate limit or the higher rate limit for the tax year is
(in accordance with section 192 of this Act or section 414 of ITA 2007)
increased in the case of the individual, the references to the limit in
subsection (4A) are to the limit as so increased.”
10
      (5)
Omit subsections (5A) and (5B).
      (6)
In subsection (6), after the entry relating to sections 230 to 237 (before the
“and”) insert—
“sections 237A to 237F (persons liable to charge),”.
4
For section 228 substitute—
15
“228
Annual allowance
(1)
The annual allowance for the tax year 2011-12 and, subject to
subsection (2), each subsequent tax year is £50,000.
(2)
The Treasury may by order provide that the annual allowance for
any tax year subsequent to the tax year 2011-12 is such amount as is
20
specified in the order.”
5
After that section insert—
“228A
Carry forward of unused annual allowance
(1)
This section applies if the individual has unused annual allowance
available for the tax year (“the current tax year”).
25
(2)
The annual allowance for the current tax year in the case of the
individual is to be treated as increased by the amount of the unused
annual allowance available for the current tax year.
(3)
The individual has unused annual allowance available for the
current tax year if—
30
(a)
the amount of the annual allowance (before any increase
under this section) for the immediately preceding tax year
exceeded the total pension input amount in the case of the
individual for that tax year, or
(b)
the amount of the annual allowance (before any such
35
increase) for either or both of the two tax years immediately
preceding that immediately preceding tax year exceeded the
total pension input amount in the case of the individual for
the tax year concerned and the excess (or, where there is an
excess for both of those tax years, the excess for both tax
40
years) has not been used up,

or both.
(4)
Subsection (3)—

Finance (No. 3) Bill
Schedule 17 — Annual allowance charge
Part 1 — Amendments
273

(a)
does not apply in relation to a tax year preceding the current
tax year unless the individual was a member of a registered
pension scheme at some time during that tax year, but
(b)
subject to that, applies in relation to such a tax year even if the
total pension input amount in the case of the individual for
5
that tax year was nil (in which case the excess within
paragraph (a) or (b) of that subsection is the whole amount of
the annual allowance before any increase under this section).
(5)
The amount of the unused annual allowance available for the current
tax year is the aggregate of—
10
(a)
any excess within subsection (3)(a), and
(b)
so much of any excess within subsection (3)(b) as has not
been used up.
(6)
An amount of an excess within subsection (3)(b) for a tax year has
been “used up” if—
15
(a)
for a tax year falling between that tax year and the current tax
year (an “intervening tax year”), the total pension input
amount in the case of the individual exceeded the annual
allowance (apart from any increase under this section), and
(b)
the amount of the excess had effect by virtue of this section to
20
reduce (or eliminate) the annual allowance charge for the
intervening tax year in the case of the individual.
(7)
In calculating for the purposes of subsection (6) the amount of which
of the excesses for different tax years had effect to reduce or eliminate
the annual allowance charge for an intervening tax year, an amount
25
of the excess for an earlier tax year is to be taken to have done so
before that for a later tax year.”
6     (1)
Section 229 (total pension input amount) is amended as follows.
      (2)
In subsection (2)(c), for “236” substitute “236A”.
      (3)
in subsection (3), for paragraph (a) substitute—
30
“(a)
satisfies the severe ill-health condition, or”.
      (4)
After that subsection insert—
“(4)
For the purposes of subsection (3)(a) the individual satisfies the
severe ill-health condition if the individual—
(a)
becomes entitled to all the benefits to which the individual is
35
entitled under the arrangement in consequence of the scheme
administrator having received evidence from a registered
medical practitioner that the individual is suffering from ill-
health which makes the individual unlikely to be able
(otherwise than to an insignificant extent) to undertake
40
gainful work (in any capacity) before reaching pensionable
age,
(b)
becomes entitled to a serious ill-health lump sum under the
arrangement, or
(c)
is a member of the armed forces of the Crown who becomes
45
entitled under the arrangement to a benefit on which no
liability to income tax arises by virtue of section 641(1) of
ITEPA 2003.”

Finance (No. 3) Bill
Schedule 17 — Annual allowance charge
Part 1 — Amendments
274

7     (1)
Section 230 (cash balance arrangements) is amended as follows.
      (2)
In subsection (4), for “beginning of the pension input period” substitute “end
of the immediately preceding pension input period (or is nil if the pension
input period is the first pension input period of the arrangement)”.
      (3)
After subsection (5) insert—
5
“(5A)
If, during the pension input period, minimum payments are made
under—
(a)
section 8 of the Pension Schemes Act 1993, or
(b)
section 4 of the Pension Schemes (Northern Ireland) Act 1993,

in relation to the individual in connection with the arrangement,
10
their amount is to be subtracted from what would otherwise be the
pension input amount in the case of the individual in respect of the
arrangement.
(5B)
The pension input amount in respect of the arrangement is nil if—
(a)
the individual is a deferred member of the pension scheme
15
under which it is an arrangement (or would be if it were the
only arrangement under the pension scheme relating to the
individual) throughout the pension input period or is (or
would be) such a deferred member for part of the pension
input period and a pensioner member for the rest of it, and
20
(b)
the value of the relevant rights of the individual does not
increase during the pension input period by more than the
relevant percentage.
(5C)
In this section—
“guaranteed minimum pension” has the meaning given by—
25
(a)
section 8(2) of the Pension Schemes Act 1993, or
(b)
section 4(2) of the Pension Schemes (Northern
Ireland) Act 1993;
“predecessor arrangement”, in relation to an arrangement,
means another arrangement (under the same or another
30
registered pension scheme) from which some or all of the
sums or assets held for the purposes of the arrangement
directly or indirectly derive;
“predecessor registered pension scheme”, in relation to a
pension scheme, means another registered pension scheme
35
from which some or all of the sums or assets held for the
purposes of the arrangement under the pension scheme
directly or indirectly derive;
“the relevant percentage”—
(a)
where throughout the pension input period the
40
arrangement (or a predecessor arrangement) includes
provision for the value of the relevant rights of the
individual to increase at an annual rate specified in
the rules of the pension scheme (or a predecessor
registered pension scheme) on 14 October 2010, that
45
percentage, and
(b)
otherwise, the percentage by which the consumer
prices index for a month falling within the pension
input period and nominated by the scheme
administrator is higher than it was for the same
50

Finance (No. 3) Bill
Schedule 17 — Annual allowance charge
Part 1 — Amendments
275

month in the previous period of 12 months (or nil per
cent if it is not higher);
“the relevant rights of the individual” means rights of the
individual under the arrangement, other than any rights to a
guaranteed minimum pension;
5
“specified”, in relation to an annual rate, means specified as a
percentage figure or as a percentage produced by movement
in an index (or a combination of the two) but does not include
a percentage produced by the exercise of a discretion by any
person.”
10
8
In section 231 (cash balance arrangements: uprating of opening value), for
subsection (3) substitute—
“(3)
The appropriate percentage is the percentage (if any) by which the
consumer prices index for the September before the start of the tax
year is higher than it was for the previous September.”
15
9     (1)
Section 232 (cash balance arrangements: adjustments of closing value) is
amended as follows.
      (2)
In subsection (2), for “the debit” substitute “the reduction”.
      (3)
In subsection (3), for “the credit” substitute “the increase”.
      (4)
In subsection (4)—
20
(a)
for “Subsection (5) applies if” substitute “If”,
(b)
for “virtue of a transfer of any sum or asset” substitute “reason of a
transfer relating to the individual of any sums or assets”,
(c)
omit “other”, and
(d)
insert at the end (not as part of paragraph (b)) “the amount of the
25
reduction is to be added.”
      (5)
Omit subsection (5).
      (6)
In subsection (6)—
(a)
for “Subsection (7) applies if” substitute “If”,
(b)
for “virtue of a transfer” substitute “reason of a transfer relating to
30
the individual”, and
(c)
insert at the end “, the amount of the increase is to be subtracted.”
      (7)
Omit subsection (7).
      (8)
For subsection (8) substitute—
“(8)
If, during the pension input period, the rights of the individual under
35
the arrangement have been reduced by any surrender made, or
similar action taken, pursuant to an option available to the
individual under the arrangement, the amount of the reduction is to
be added.
(8A)
If, during the pension input period—
40
(a)
benefit crystallisation event 1, 2 or 4 occurs in relation to the
individual and the arrangement,
(b)
benefit crystallisation event 3 occurs in relation to the
individual and the arrangement otherwise than by reason of
a provision contained in, or made under, any enactment,
45

Finance (No. 3) Bill
Schedule 17 — Annual allowance charge
Part 1 — Amendments
276

(c)
benefit crystallisation event 6 occurs or, but for paragraph
15A of Schedule 32, would occur in relation to the individual
and the arrangement by virtue of the individual becoming
entitled to a pension commencement lump sum or a lifetime
allowance excess lump sum, or
5
(d)
there is an allocation of rights of the individual under the
arrangement (not falling within paragraph (a)),

the relevant amount is to be added.
(8B)
In subsection (8A) “the relevant amount” is—
(a)
in the case of benefit crystallisation event 2, what the annual
10
rate of the pension would be on the valuation assumptions,
(b)
in the case of benefit crystallisation event 3, the increase in the
annual rate of the pension,
(c)
in the case of benefit crystallisation event 6, the amount of the
lump sum, and
15
(d)
in any other case, the amount of the reduction in the amount
of the rights available for the provision of benefits to or in
respect of the individual occurring by reason of the benefit
crystallisation event or allocation.
(8C)
If, during the pension input period, an adjustment to the individual’s
20
rights under the arrangement is made in consequence of the scheme
administrator satisfying a liability under section 237B in respect of
the individual, if and to the extent that the adjustment would not
otherwise be reflected in the closing amount the appropriate amount
is to be subtracted.”
25
      (9)
Omit subsection (9).
10    (1)
Section 234 (defined benefits arrangements) is amended as follows.
      (2)
In subsection (4)—
(a)
for “10” substitute “16”,
(b)
in the definition of PB, for “beginning of the pension input period”
30
substitute “end of the immediately preceding pension input period
(or is nil if the pension input period is the first pension input period
of the arrangement)”, and
(c)
in the definition of LSB, for “that time” substitute “the end of the
immediately preceding pension input period (or is nil if the pension
35
input period is the first pension input period of the arrangement)”.
      (3)
In subsection (5), for “10” substitute “16”.
      (4)
After that subsection insert—
“(5A)
If, during the pension input period, minimum payments are made
under—
40
(a)
section 8 of the Pension Schemes Act 1993, or
(b)
section 4 of the Pension Schemes (Northern Ireland) Act 1993,

in relation to the individual in connection with the arrangement,
their amount is to be subtracted from what would otherwise be the
pension input amount in the case of the individual in respect of the
45
arrangement.
(5B)
The pension input amount in respect of the arrangement is nil if—

Finance (No. 3) Bill
Schedule 17 — Annual allowance charge
Part 1 — Amendments
277

(a)
the individual is a deferred member of the pension scheme
under which it is an arrangement (or would be if it were the
only arrangement under the pension scheme relating to the
individual) throughout the pension input period or is (or
would be) such a deferred member for part of the pension
5
input period and a pensioner member for the rest of it, and
(b)
the value of the relevant rights of the individual does not
increase during the pension input period by more than the
relevant percentage.
(5C)
In this section—
10
“guaranteed minimum pension” has the meaning given by—
(a)
section 8(2) of the Pension Schemes Act 1993, or
(b)
section 4(2) of the Pension Schemes (Northern
Ireland) Act 1993;
“predecessor arrangement”, in relation to an arrangement,
15
means another arrangement (under the same or another
registered pension scheme) from which some or all of the
sums or assets held for the purposes of the arrangement
directly or indirectly derive;
“predecessor registered pension scheme”, in relation to a
20
pension scheme, means another registered pension scheme
from which some or all of the sums or assets held for the
purposes of the arrangement under the pension scheme
directly or indirectly derive;
“the relevant percentage”—
25
(a)
where throughout the pension input period the
arrangement (or a predecessor arrangement) includes
provision for the value of the relevant rights of the
individual to increase at an annual rate specified in
the rules of the pension scheme (or a predecessor
30
registered pension scheme) on 14 October 2010, that
percentage, and
(b)
otherwise, the percentage by which the consumer
prices index for a month falling within the pension
input period and nominated by the scheme
35
administrator is higher than it was for the same
month in the previous period of 12 months (or nil per
cent if it is not higher);
“the relevant rights of the individual” means rights of the
individual under the arrangement, other than any rights to a
40
guaranteed minimum pension;
“specified”, in relation to an annual rate, means specified as a
percentage figure or as a percentage produced by movement
in an index (or a combination of the two) but does not include
a percentage produced by the exercise of a discretion by any
45
person.”
      (5)
In subsection (6), for “and section 236 (adjustments of closing value)”
substitute “, section 236 (adjustments of closing value) and section 236A
(post-entitlement enhancements)”.
11    (1)
In section 235 (defined benefits arrangements: uprating of opening value) is
50
amended as follows.