Finance (No. 3) Bill

Session 2010 - 11
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Other Bills before Parliament

Finance (No. 3) Bill

Finance (No. 3) Bill
Schedule 17 — Annual allowance charge
Part 1 — Amendments
278

      (2)
In subsection (1), omit “in a case where rights do not accrue to the individual
under the arrangement during the pension input period”.
      (3)
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
5
year is higher than it was for the previous September.”
12    (1)
Section 236 (defined benefits arrangements: adjustments of closing value) is
amended as follows.
      (2)
In subsection (1), for “the closing value of the individual’s rights as
calculated” substitute “PE and LSE”.
10
      (3)
In subsection (2)—
(a)
for “rights of the individual under the arrangement have” substitute
“annual rate of the pension, or the amount of the lump sum, to which
the individual would be entitled under the arrangement has”,
(b)
for “the debit” substitute “the reduction”, and
15
(c)
insert at the end “to PE or LSE”.
      (4)
In subsection (3)—
(a)
for “rights of the individual under the arrangement have” substitute
“annual rate of the pension, or the amount of the lump sum, to which
the individual would be entitled under the arrangement has”,
20
(b)
for “the credit” substitute “the increase”, and
(c)
insert at the end “from PE or LSE”.
      (5)
For subsections (4) to (7) substitute—
(4)
“If, during the pension input period, the annual rate of the pension,
or the amount of the lump sum, to which the individual would be
25
entitled under the arrangement has been reduced by reason of a
transfer relating to the individual of any sums or assets held for the
purposes of, or representing accrued rights under, the arrangement
so as to become held for the purposes of, or to represent rights under,
any pension scheme that is—
30
(a)
a registered pension scheme, or
(b)
a qualifying recognised overseas pension scheme,

the amount of the reduction is to be added to PE or LSE.
(5)
If, during the pension input period, the annual rate of the pension, or
the amount of the lump sum, to which the individual would be
35
entitled under the arrangement has been increased by reason of a
transfer relating to the individual of any sums or assets held for the
purposes of, or representing accrued rights under, any pension
scheme so as to become held for the purposes of, or to represent
rights under, the arrangement, the amount of the increase is to be
40
subtracted from PE or LSE.”
      (6)
For subsection (8) substitute—
“(8)
If, during the pension input period, the annual rate of the pension, or
the amount of the lump sum, to which the individual would be
entitled under the arrangement has been reduced by any surrender
45
made in return for any other entitlement, any allocation made, or any

Finance (No. 3) Bill
Schedule 17 — Annual allowance charge
Part 1 — Amendments
279

similar action taken, pursuant to an option available to the
individual under the arrangement, the amount of the reduction is to
be added to PE or LSE.
(8A)
If, during the pension input period—
(a)
benefit crystallisation event 2 occurs in relation to the
5
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, or
(c)
benefit crystallisation event 6 occurs in relation to the
10
individual and the arrangement by virtue of the individual
becoming entitled to a pension commencement lump sum or
a lifetime allowance excess lump sum,

the relevant amount is to be added to PE or LSE.
(8B)
In subsection (8A) “the relevant amount” is—
15
(a)
in the case of benefit crystallisation event 2, what the annual
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, and
(c)
in the case of benefit crystallisation event 6, the amount of the
20
lump sum.
(8C)
If, during the pension input period, an adjustment to the annual rate
of the pension, or the amount of the lump sum, to which the
individual would be entitled under the arrangement has been made
in consequence of the scheme administrator satisfying a liability
25
under section 237B in respect of the individual, if and to the extent
that the adjustment would not otherwise be reflected in PE or LSE
the appropriate amount is to be subtracted from PE or LSE.”
      (7)
Omit subsection (9).
13
After section 236 insert—
30
“236A
Post-entitlement enhancements
(1)
This section applies in relation to the arrangement if, during the
pension input period (“the affected pension input period”), the
individual enters into a scheme for the making of an avoidance-
inspired post-entitlement enhancement.
35
(2)
A “post-entitlement enhancement” is an increase in the annual rate
of a scheme pension under the arrangement, at a time after the
member has become entitled to the scheme pension.
(3)
A post-entitlement enhancement is “avoidance-inspired” if the main
purpose, or one of the main purposes, of the individual in entering
40
into the scheme was to avoid or reduce a liability to the annual
allowance charge.
(4)
This Part has effect in relation to the arrangement and the individual,
as respects the affected pension input period and all subsequent
pension input periods, as if—
45
(a)
section 234 were modified in accordance with subsection (5),
and

Finance (No. 3) Bill
Schedule 17 — Annual allowance charge
Part 1 — Amendments
280

(b)
sections 235 and 236 were omitted.
(5)
The modifications of section 234 are that—
(a)
in subsection (4), for the words after “the arrangement is”
there are substituted “such amount as, applying normal
actuarial practice, is the expected cost of giving effect to the
5
individual’s rights under the arrangement at the 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).”,
(b)
in subsection (5), for the words after “the arrangement is”
10
there are substituted “such amount as, applying normal
actuarial practice, is the expected cost of giving effect to the
individual’s rights under the arrangement at the end of the
pension input period.”, and
(c)
subsection (6) is omitted.
15
(6)
In this section “scheme” includes any arrangements, agreement,
understanding, transaction or series of transactions (whether or not
legally enforceable).”
14
In subsection (5) of section 237 (hybrid arrangements), for “236” substitute
“236A”.
20
15
After that section insert—
“237A
Liability of individual
(1)
The individual is liable to the annual allowance charge.
(2)
The individual is liable to the annual allowance charge whether or
not—
25
(a)
the individual, and
(b)
the scheme administrator of the pension scheme or pension
schemes concerned,

are resident, ordinarily resident or domiciled in the United
Kingdom.
30
237B
Liability of scheme administrator
(1)
This section applies if—
(a)
the amount of the individual’s liability to the annual
allowance charge for a tax year exceeds £2,000, and
(b)
the pension scheme input amount in the case of the
35
individual in relation to a registered pension scheme for the
tax year exceeds the amount of the annual allowance
specified in section 228(1) for the tax year.
(2)
The pension scheme input amount in the case of the individual in
relation to a pension scheme for a tax year is the aggregate of the
40
pension input amounts for the tax year in respect of arrangements
relating to the individual under the pension scheme.
(3)
The individual may give a notice to the scheme administrator of the
pension scheme specifying that the individual and the scheme
administrator are to be jointly and severally liable in respect of so
45

Finance (No. 3) Bill
Schedule 17 — Annual allowance charge
Part 1 — Amendments
281

much of the annual allowance charge arising in the case of the
individual as—
(a)
does not exceed the amount of the annual allowance charge
which would be chargeable on the excess mentioned in
subsection (1)(b) if it were charged at the relevant rate, and
5
(b)
is specified in the notice,

(“the joint liability amount”).
(4)
In subsection (3)(a) “the relevant rate” means—
(a)
in relation to so much of the excess as does not exceed the
amount (if any) on which tax is chargeable in the case of the
10
individual for the tax year at the additional rate by virtue of
paragraph (c) of subsection (4A) of section 227, the additional
rate,
(b)
in relation to so much of the excess as is not within paragraph
(a) and does not exceed the amount (if any) on which tax is so
15
chargeable at the higher rate by virtue of paragraph (b) of that
subsection, the higher rate, and
(c)
in relation to any remaining part of the excess, the basic rate.
(5)
The notice—
(a)
must be given not later than 31 July in the year following that
20
in which the tax year ends (but subject to subsection (6)),
(b)
must be made in such manner and form, and contain such
particulars, as may be prescribed by regulations made by the
Commissioners for Her Majesty’s Revenue and Customs,
and
25
(c)
may be amended by giving the scheme administrator notice
in accordance with provision made by regulations made by
the Commissioners for Her Majesty’s Revenue and Customs
but may not be revoked.
(6)
In a case in which the individual becomes actually entitled to all of
30
the individual’s benefits under the pension scheme in the tax year or
benefit crystallisation event 5, 5A or 5B occurs in the tax year in
relation to the individual and the pension scheme, the notice must be
given before the date on which the individual becomes so entitled or
the benefit crystallisation event occurs.
35
(7)
On receipt by the scheme administrator of the notice the scheme
administrator and the individual become jointly and severally liable
to pay the joint liability amount, but subject to sections 237C and
237D and to any amendment made to the notice in accordance with
regulations under subsection (5)(c).
40
(8)
The scheme administrator is liable under subsection (7) whether or
not—
(a)
the individual, and
(b)
the scheme administrator,

are resident, ordinarily resident or domiciled in the United
45
Kingdom.
(9)
Where (but for this subsection) a notice could be given to a scheme
administrator of a pension scheme but, before it is given, there is a
transfer of all of the sums or assets—

Finance (No. 3) Bill
Schedule 17 — Annual allowance charge
Part 1 — Amendments
282

(a)
held for the purposes of, or
(b)
representing accrued rights under,

the pension scheme so as to become held for the purposes of, or to
represent rights under, another registered pension scheme, the
notice may not be given to that scheme administrator but may
5
instead be given to the scheme administrator of that other pension
scheme.
(10)
The Treasury may by regulations make provision modifying the
operation of this section in other cases in which there is a transfer of
any of the sums or assets—
10
(a)
held for the purposes of, or
(b)
representing accrued rights under,

the pension scheme so as to become held for the purposes of, or to
represent rights under, another registered pension scheme.
(11)
The Treasury may by order amend paragraph (a) of subsection (1) so
15
as to increase the sum for the time being specified in that paragraph.
237C
Exceptions
(1)
The scheme administrator of a pension scheme does not become
liable under section 237B if the time when the scheme administrator
would become liable is during an assessment period in relation to the
20
pension scheme; and if an assessment period in relation to a pension
scheme begins at a time when the scheme administrator is already so
liable (but has not satisfied the liability), the liability ceases when the
assessment period begins.

References to an assessment period are to be construed in accordance
25
with sections 132 and 159 of the Pensions Act 2004 and articles 116
and 143 of the Pensions (Northern Ireland) Order 2005 (S.I. 2005/255
(N.I. 1)).
(2)
The scheme administrator of a pension scheme is not liable under
section 237B in respect of any amount if there is no power to make a
30
consequential adjustment to the entitlement of the individual
concerned to benefits under the pension scheme in respect of the
amount because of section 237E(2) (inalienability of guaranteed
minimum pension etc).
(3)
The Treasury may by regulations prescribe other circumstances in
35
which a scheme administrator of a pension scheme does not become,
or ceases to be, liable under section 237B.
237D
Discharge of scheme administrator’s liability
(1)
If the scheme administrator of a pension scheme is liable under
section 237B, the scheme administrator may apply to an officer of
40
Revenue and Customs for the discharge of the scheme
administrator’s liability on either of the following grounds.
(2)
The grounds are—
(a)
that paying the amount to which the scheme administrator is
liable would be to the substantial detriment of the interests of
45
the members of the pension scheme, and

Finance (No. 3) Bill
Schedule 17 — Annual allowance charge
Part 1 — Amendments
283

(b)
that in all the circumstances of the case it would not be just
and reasonable for the scheme administrator to be liable to
that amount.
(3)
On receiving an application under subsection (1), an officer of
Revenue and Customs must decide whether to discharge the scheme
5
administrator’s liability.
(4)
An officer of Revenue and Customs must notify the scheme
administrator of the decision on the application.
(5)
The discharge of the scheme administrator’s liability does not affect
the liability of any other person in respect of the same amount.
10
(6)
The Treasury may by regulations amend this section so as to alter the
grounds on which an application under subsection (1) may be made.
(7)
Regulations made by the Commissioners for Her Majesty’s Revenue
and Customs may make provision supplementing this section; and
the regulations may in particular make provision as to the time limits
15
for the making of an application.
237E
Consequential benefit adjustments to be reasonable etc
(1)
Where the scheme administrator of a pension scheme satisfies a
liability under section 237B in respect of the individual,
consequential adjustment must be made to the entitlement of the
20
individual to benefits under the pension scheme on a basis that is just
and reasonable having regard to normal actuarial practice.
(2)
Any power to make such consequential adjustment is subject to
section 159 of the Pension Schemes Act 1993 or section 155 of the
Pension Schemes (Northern Ireland) Act 1995 (inalienability of
25
guaranteed minimum pension etc).
237F
Power to modify rules
The Commissioners for Her Majesty’s Revenue and Customs may by
regulations make any modification of the rules of registered pension
schemes that appear appropriate to facilitate the operation of
30
sections 237A to 237E.”
16    (1)
Section 238 (pension input period) is amended as follows.
      (2)
In subsection (1)(a), for the words after “ending with” substitute “—
(i)
a nominated date falling before the anniversary of the
relevant commencement date, or
35
(ii)
if there is not such a nominated date, the first 5 April
after the relevant commencement date (or, if the
relevant commencement date is itself 5 April, that
date), and”
      (3)
After subsection (4) insert—
40
“(4A)
A date nominated for the purposes of subsection (3) must not be a
date before that on which the nomination is made.”
      (4)
In subsection (6)—
(a)
omit “the earlier of”,

Finance (No. 3) Bill
Schedule 17 — Annual allowance charge
Part 1 — Amendments
284

(b)
for “and” substitute “or”, and
(c)
insert at the beginning of paragraph (b) “if there is not such a
nominated date, the day before”.
      (5)
In subsection (7), for “to be treated as having ended when” substitute “that
in which”.
5
17
After that section insert—
“238A
Power to make orders about charge
(1)
The Treasury may by order make provision about the annual
allowance charge.
(2)
The provision may include modifications of any of sections 227 to
10
238.
(3)
The provision may include provision consequential on, or
supplementary or incidental to, the provision made by those sections
and transitional provisions (including provision making
modifications of enactments).
15
(4)
“Modifications” includes amendments.”
18
In section 254 (accounting for tax by scheme administrators), after
subsection (7) insert—
“(7A)
Where a scheme administrator is liable under section 237B in respect
of the annual allowance charge for a tax year, for the purposes of
20
subsection (2) the tax is to be taken to be charged on the scheme
administrator in the period ending with 31 December in the year
following that in which that tax year ended (or such earlier period as
the scheme administrator may elect in a return for that earlier
period).
25
(7B)
But if the notice which gave rise to the liability is amended in
accordance with regulations under section 237B(5)(c), any additional
tax to which the scheme administrator becomes liable is to be taken
for the purposes of subsection (2) to be charged in the later of the
period in which it is taken to be charged by virtue of subsection (7A)
30
and the period in which the scheme administrator receives notice of
the amendment.”
19
In section 255(1) (assessments), after paragraph (c) insert—
“(ca)
liability to the annual allowance charge by virtue of section
237B,”.
35
20
In section 269(1)(a) (appeal against discharge of liability), after “under”
insert “section 237D (discharge of scheme administrator’s liability to annual
allowance charge),”.
21
In section 279(1) (other definitions), insert at the appropriate places—
““consumer prices index” means—
40
(a)
the general index for consumer prices published by
the Statistics Board, or
(b)
if that index is not published for a relevant month,
any substituted index or index figures published by
the Statistics Board,”, and
45