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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.

 
 

 
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Revised 31 March 2011