Office of Public Sector Information
PART 4 continued CHAPTER 4 continued
(1) This section applies where a sum is paid to the trustees or managers of a registered pension scheme by an employer in or towards the discharge of any liability of the employer under—
(a) section 75 of the Pensions Act 1995 (c. 26)(deficiencies in the assets of a pension scheme), or
(b) Article 75 of the Pensions (Northern Ireland) Order 1995 (S.I. 1995/3213 (N.I. 22)) (corresponding provision for Northern Ireland).
(2) The making of the payment is to be treated for the purposes of—
(a) Case I and II of Schedule D,
(b) section 75 of ICTA (expenses of management: companies with investment business), and
(c) section 76 of ICTA (expenses of insurance companies),
as if it were the payment of a contribution by the employer under the pension scheme.
(3) Subsections (4) and (5) apply if the employer’s trade, profession, vocation or business is discontinued before the making of the payment.
(4) The payment is to be relieved—
(a) to the same extent as it would have been but for the discontinuance, and
(b) as if it had been made on the last day on which the trade, profession, vocation or business was carried on.
(5) And for the purposes of section 76 of ICTA it is to be treated (to the extent that it would not otherwise be) as part of expenses payable falling to be brought into account at Step 1 in subsection (7) of that section.
No sums other than contributions paid by an employer under a registered pension scheme—
(a) are deductible in computing the amount of the profits of the employer for the purposes of Case I or II of Schedule D,
(b) are expenses of management for the purposes of section 75 of ICTA (expenses of management: companies with investment business), or
(c) are to be brought into account at Step 1 in section 76(7) of ICTA (expenses of insurance companies),
in connection with the cost of providing benefits under the pension scheme.
(1) In section 307(1) of ITEPA 2003 (exemption for provision made by employer for retirement or death benefit), after “employer” insert “under a registered pension scheme or otherwise”.
(2) For section 308 of ITEPA 2003 (exemption of contributions to approved personal pension arrangements) substitute—
No liability to income tax arises in respect of earnings where an employee’s employer makes contributions under a registered pension scheme.”
(1) This section applies where under—
(a) section 43 of the Pension Schemes Act 1993 (c. 48), or
(b) section 39 of the Pension Schemes (Northern Ireland) Act 1993 (c. 49),
the Board of Inland Revenue pays minimum contributions for the purposes of a registered pension scheme.
(2) The amount of the minimum contributions is to be increased by the difference between—
(a) the amount of the employee’s share of the minimum contributions, and
(b) the grossed-up equivalent of that amount.
(3) The amount of the employee’s share of the minimum contributions is the amount that would be the amount of the minimum contributions if—
(a) for the reference to the age-related percentage in section 45(1) of the Pension Schemes Act 1993 (amount of minimum contributions) there were substituted a reference to the percentage mentioned in section 41(1A) of that Act (percentage used to reduce primary Class 1 contribution), or
(b) for the reference to the age-related percentage in section 41(1) of the Pension Schemes (Northern Ireland) Act 1993 there were substituted a reference to the percentage mentioned in section 37(1A) of that Act (corresponding provisions for Northern Ireland).
(4) The “grossed-up equivalent” of the amount of the employee’s share of the minimum contributions is the sum which, after deduction of income tax at the basic rate in force for the tax year for which the minimum contributions are paid, is equal to that amount.
(5) The Board of Inland Revenue may by regulations—
(a) prescribe circumstances in which this section does not apply, or
(b) make provision supplementing this section.
(6) The Board of Inland Revenue must—
(a) pay into the National Insurance Fund out of money provided by Parliament the amount of any increase attributable to this section in the sums paid out of that Fund under the Pension Schemes Act 1993, and
(b) pay into the Northern Ireland National Insurance Fund out of money provided by Parliament the amount of any increase attributable to this section in the sums paid out of that Fund under the Pension Schemes (Northern Ireland) Act 1993.
(1) The Inheritance Tax Act 1984 (c. 51) is amended as follows.
(2) In section 12 (dispositions that are not transfers of value)—
(a) in subsection (2), for the words following “if” substitute “it is a contribution under a registered pension scheme or section 615(3) scheme in respect of an employee of the person making the disposition.”, and
(b) omit subsections (3) and (4).
(3) In section 58(1) (settled property in which no qualifying interest in possession subsists but which is not “relevant property”), for paragraph (d) substitute—
“(d) property which is held for the purposes of a registered pension scheme or section 615(3) scheme;”.
(4) In section 151 (treatment of pension rights etc.)—
(a) omit subsections (1) and (1A),
(b) in subsections (2), (4) and (5), for “fund or scheme to which this section applies” substitute “registered pension scheme or section 615(3) scheme”, and
(c) in subsection (2)(b), for the “fund or scheme” (in both places) substitute “scheme”.
(5) In section 152 (cash options), for the words from the beginning to “or scheme” substitute “Where on a person’s death an annuity becomes payable under a registered pension scheme or section 615(3) scheme to a widow, widower or dependant of that person and under the terms of the scheme”.
(6) In section 272 (general interpretation), insert at the appropriate places—
““registered pension scheme” has the same meaning as in Part 4 of the Finance Act 2004;”, and
““section 615(3) scheme” means a superannuation fund to which section 615(3)of the Taxes Act 1988 applies;”.
(1) Schedule 31 contains provision about the taxation of pensions and lump sums which are authorised to be paid by this Part.
(2) Schedule 36 contains (in Part 4) transitional provision about the taxation of annuities under existing retirement annuity contracts and other relevant transitional provision.
(1) A charge to income tax, to be known as the short service refund lump sum charge, arises where a short service refund lump sum is paid by a registered pension scheme.
(2) The person liable to the short service refund lump sum charge is the scheme administrator.
(3) The scheme administrator is liable to the short service refund lump sum charge whether or not—
(a) the scheme administrator, and
(b) the person to whom the short service refund lump sum is paid,
are resident, ordinarily resident or domiciled in the United Kingdom.
(4) The rate of the charge is—
(a) 20% in respect of so much of the lump sum as does not exceed £10,800, and
(b) 40% in respect of so much (if any) of it as exceeds that limit.
(5) The Treasury may by order amend subsection (4) so as to—
(a) increase or decrease either or both of the rates for the time being specified in that subsection, or
(b) increase the limit for the time being specified in paragraph (a) of that subsection.
(6) Tax under this section is to be charged on the amount of the lump sum paid or, if the rules of the pension scheme permit the scheme administrator to deduct the tax before payment, on the amount of the lump sum before deduction of tax.
(7) A short service refund lump sum is not to be treated as income for any purpose of the Tax Acts.
(1) A charge to income tax, to be known as the special lump sum death benefits charge, arises where—
(a) a pension protection lump sum death benefit,
(b) an annuity protection lump sum death benefit, or
(c) an unsecured pension fund lump sum death benefit,
is paid by a registered pension scheme.
(2) The person liable to the special lump sum death benefits charge is the scheme administrator.
(3) The scheme administrator is liable to the special lump sum death benefits charge whether or not—
(a) the scheme administrator, and
(b) the person to whom the lump sum death benefit is paid,
are resident, ordinarily resident or domiciled in the United Kingdom.
(4) The rate of the charge is 35% in respect of the lump sum death benefit.
(5) The Treasury may by order increase or decrease the rate for the time being specified in subsection (4).
(6) Tax under this section is to be charged on the amount of the lump sum paid or, if the rules of the pension scheme permit the scheme administrator to deduct the tax before payment, on the amount of the lump sum before deduction of tax.
(7) No pension protection lump sum death benefit, annuity protection lump sum death benefit or unsecured pension fund lump sum death benefit is to be treated as income for any purpose of the Tax Acts.
(1) A charge to income tax, to be known as the authorised surplus payments charge, arises where an authorised surplus payment is made to a sponsoring employer by an occupational pension scheme that is a registered pension scheme.
(2) The person liable to the authorised surplus payments charge is the scheme administrator.
(3) The scheme administrator is liable to the authorised surplus payments charge whether or not—
(a) the scheme administrator, and
(b) the sponsoring employer,
are resident, ordinarily resident or domiciled in the United Kingdom.
(4) The rate of the charge is 35% in respect of the authorised surplus payment.
(5) The Treasury may by order increase or decrease the rate for the time being specified in subsection (4).
(6) Subsection (1) does not apply to any authorised surplus payment—
(a) to the extent that (if this section had not been enacted) the sponsoring employer would have been exempt, or entitled to claim exemption, from income tax or corporation tax in respect of it, or
(b) if the sponsoring employer is a charity.
(7) An authorised surplus payment in respect of which income tax is charged under this section is not to be treated as income for any purpose of the Tax Acts.
(8) Schedule 36 contains (in Part 4) transitional provisions about the authorised surplus payments charge.
(1) A charge to income tax, to be known as the unauthorised payments charge, arises where an unauthorised payment is made by a registered pension scheme.
(2) The person liable to the charge—
(a) in the case of an unauthorised member payment made before the member’s death, is the member to or in respect of whom the payment is made,
(b) in the case of an unauthorised member payment made after the member’s death, is the recipient, and
(c) in the case of an unauthorised employer payment, is the sponsoring employer to or in respect of whom the payment is made.
(3) If more than one person is liable to the unauthorised payments charge in respect of an unauthorised payment, those persons are jointly and severally liable to the charge in respect of the payment.
(4) A person is liable to the unauthorised payments charge whether or not—
(a) that person,
(b) any other person who is liable to the unauthorised payments charge, and
(c) the scheme administrator,
are resident, ordinarily resident or domiciled in the United Kingdom.
(5) The rate of the charge is 40% in respect of the unauthorised payment.
(6) The Treasury may by order increase or decrease the rate for the time being specified in subsection (5).
(7) An unauthorised payment may also be subject to—
(a) the unauthorised payments surcharge under section 209, and
(b) the scheme sanction charge under section 239.
(8) An unauthorised payment is not to be treated as income for any purpose of the Tax Acts.
(1) A charge to income tax, to be known as the unauthorised payments surcharge, arises where a surchargeable unauthorised payment is made by a registered pension scheme.
(2) “Surchargeable unauthorised payments” means—
(a) surchargeable unauthorised member payments (see section 210), and
(b) surchargeable unauthorised employer payments (see section 213).
(3) The person liable to the charge—
(a) in the case of a surchargeable unauthorised member payment made before the member’s death, is the member in respect of whose arrangement the payment was made,
(b) in the case of a surchargeable unauthorised member payment made after the member’s death, is the recipient, and
(c) in the case of a surchargeable unauthorised employer payment, is the sponsoring employer to or in respect of whom the payment was made.
(4) If more than one person is liable to the unauthorised payments surcharge in respect of a surchargeable unauthorised payment, those persons are jointly and severally liable to the surcharge in respect of the payment.
(5) A person is liable to the unauthorised payments surcharge whether or not—
(a) that person,
(b) any other person who is liable to the unauthorised payments surcharge, and
(c) the scheme administrator,
are resident, ordinarily resident or domiciled in the United Kingdom.
(6) The rate of the charge is 15% in respect of the surchargeable unauthorised payment.
(7) The Treasury may by order increase or decrease the rate for the time being specified in subsection (6).
(1) This section identifies which unauthorised member payments made by a registered pension scheme in respect of an arrangement relating to a member under the pension scheme are surchargeable.
(2) If the surcharge threshold is reached before the end of the period of 12 months beginning with a reference date, each unauthorised member payment made in respect of the arrangement in the surcharge period is surchargeable.
(3) The surcharge period is the period—
(a) beginning with the reference date, and
(b) ending with the day on which the surcharge threshold is reached.
(4) The first reference date is the date on which the pension scheme first makes an unauthorised member payment in respect of the arrangement.
(5) Each subsequent reference date is the date, after the end of the previous reference period, on which the pension scheme next makes an unauthorised member payment in respect of the arrangement.
(6) The previous reference period is the period of 12 months beginning with the previous reference date or, if the surcharge threshold is reached in that period, is the surcharge period ending with the date on which it was reached.
(7) The surcharge threshold is reached if the unauthorised payments percentage reaches 25%.
(8) The unauthorised payments percentage is the aggregate of the percentages of the pension fund used up by each unauthorised member payment made by the pension scheme in respect of the arrangement on or after the reference date.
(9) The percentage of the pension fund used up on the occasion of an unauthorised member payment is—
where—
UMP is the amount of the unauthorised member payment, and
VR is an amount equal to the value of the member’s rights under the arrangement when the unauthorised payment is made (or, if the unauthorised payment is made after the member’s death, at the date of the member’s death).
(10) The value of the member’s rights under the arrangement on that date is the aggregate of—
(a) the value of the member’s crystallised rights under the arrangement on that date, calculated in accordance with section 211, and
(b) the value of the member’s uncrystallised rights under the arrangement on that date, calculated in accordance with section 212.
(1) The value of the member’s crystallised rights under the arrangement on any date is the aggregate of—
(a) the value of each scheme pension or lifetime annuity to which the member has an actual (rather than a prospective) entitlement under the arrangement on that date, and
(b) the aggregate of the amount of the sums, and the market value of the assets, representing the member’s unsecured pension fund or alternatively secured pension fund in respect of the arrangement on that date (if any).
(2) The value of a scheme pension or lifetime annuity is—
RVF × ARP
where—
RVF is the relevant valuation factor (see section 276), and
ARP is an amount equal to the annual rate of the pension or annuity on the date.
(1) Rights are uncrystallised if the member is not entitled to the present payment of benefits in respect of the rights.
(2) The member is to be treated as entitled to the present payment of benefits in respect of the sums and assets representing the member’s unsecured pension fund or alternatively secured pension fund.
(3) The value of the member’s uncrystallised rights under the arrangement on any date is to be calculated—
(a) in accordance with subsection (4) if the arrangement is a cash balance arrangement,
(b) in accordance with subsection (5) if the arrangement is a money purchase arrangement other than a cash balance arrangement,
(c) in accordance with subsection (6) if the arrangement is a defined benefits arrangement, and
(d) in accordance with subsection (7) if the arrangement is a hybrid arrangement.
(4) If this subsection applies, the value of the member’s uncrystallised rights under the arrangement on the date is the amount which would, on the valuation assumptions (see section 277), be available for the provision of benefits in respect of those rights if the member became entitled to benefits in respect of those rights on the date.
(5) If this subsection applies, the value of the member’s uncrystallised rights under the arrangement on the date is the aggregate of—
(a) the amount of such of the sums held for the purposes of the arrangement on the date as represent those rights, and
(b) the market value of such of the assets held for the purposes of the arrangement on the date as represent those rights.
(6) If this subsection applies, the value of the member’s uncrystallised rights under the arrangement on the date is—
where—
RVF is the relevant valuation factor (see section 276),
ARP is the annual rate of pension to which the member would, on the valuation assumptions, be entitled under the arrangement on the date if, on the date, the member acquired an actual (rather than a prospective) right to receive a pension in respect of the rights, and
LS is the amount of any lump sum to which the member would, on the valuation assumptions, be entitled under the arrangement on the date (otherwise than by way of commutation of pension) if, on the date, the member acquired an actual (rather than a prospective) right to payment of a lump sum in respect of the rights.
(7) If this subsection applies, the value of the member’s uncrystallised rights under the arrangement on the date is—
(a) if each of subsections (4), (5) and (6) is relevant, the greatest of the values of the rights calculated in accordance with each of those subsections, or
(b) if only two of those subsections are relevant, the greater of the values of the rights calculated in accordance with each of the two subsections.
(8) Subsection (4) is relevant if, in any circumstances, cash balance benefits may be provided to or in respect of the member under the arrangement.
(9) Subsection (5) is relevant if, in any circumstances, money purchase benefits other than cash balance benefits may be provided to or in respect of the member under the arrangement.
(10) Subsection (6) is relevant if, in any circumstances, defined benefits may be provided to or in respect of the member under the arrangement.
(1) This section identifies which unauthorised employer payments made by a registered pension scheme to or in respect of a sponsoring employer are surchargeable.
(2) If the surcharge threshold is reached before the end of the period of 12 months beginning with a reference date, each unauthorised employer payment made to or in respect of the employer in the surcharge period is surchargeable.
(3) The surcharge period is the period—
(a) beginning with the reference date, and
(b) ending with the day on which the surcharge threshold is reached.
(4) The first reference date is the date on which the pension scheme first makes an unauthorised employer payment to or in respect of the employer.
(5) Each subsequent reference date is the date, after the end of the previous reference period, on which the pension scheme next makes an unauthorised employer payment to or in respect of the employer.
(6) The previous reference period is the period of 12 months beginning with the previous reference date or, if the surcharge threshold is reached in that period, is the surcharge period ending with the date on which it was reached.
(7) The surcharge threshold is reached if the unauthorised payments percentage reaches 25%.
(8) The unauthorised payments percentage is the aggregate of the percentages of the pension fund used up by each unauthorised employer payment made by the pension scheme to or in respect of the employer on or after the reference date.
(9) The percentage of the pension fund used up on the occasion of an unauthorised employer payment is—
where—
UEP is the amount of the unauthorised employer payment, and
AA is an amount equal to the aggregate of the amount of the sums and the market value of the assets held for the purposes of the pension scheme at the time when the unauthorised employer payment is made.
(1) A charge to income tax, to be known as the lifetime allowance charge, arises where—
(a) a benefit crystallisation event occurs in relation to an individual who is a member of one or more registered pension schemes, and
(b) either the first lifetime allowance charge condition or the second lifetime allowance charge condition is met.
(2) The first lifetime allowance charge condition is that—
(a) the whole or any part of the individual’s lifetime allowance is available on the benefit crystallisation event, but
(b) the amount crystallised by the benefit crystallisation event exceeds the amount of the individual’s lifetime allowance which is available on the benefit crystallisation event.
(3) The second lifetime allowance charge condition is that none of the individual’s lifetime allowance is available on the benefit crystallisation event.
(4) The following sections make further provision about the lifetime allowance charge—
section 215 (amount of charge),
section 216 and Schedule 32 (benefit crystallisation events and amounts crystallised),
section 217 (persons liable to charge),
section 218 (individual’s lifetime allowance and standard lifetime allowance),
section 219 (availability of individual’s lifetime allowance), and
sections 220 to 226 (lifetime allowance enhancement factors).
(5) In sections 215 to 219—
(a) references to “the individual”, in relation to the lifetime allowance charge, are to the individual in relation to whom the benefit crystallisation event giving rise to the charge occurs, and
(b) references to “the pension scheme”, in relation to the lifetime allowance charge, are to the pension scheme to which the benefit crystallisation event giving rise to the charge, or the amount crystallised by it, relates.
(6) Schedule 36 contains (in Part 2) transitional provision about the lifetime allowance charge.
(1) The lifetime allowance charge is a charge in respect of the chargeable amount.
(2) The lifetime allowance charge is a charge—
(a) at the rate of 55% in respect of so much (if any) of the chargeable amount as constitutes the lump-sum amount, and
(b) at the rate of 25% in respect of so much (if any) of the chargeable amount as constitutes the retained amount.
(3) The “chargeable amount” is the aggregate of—
(a) the basic amount, and
(b) any amount which is treated as forming part of the lump-sum amount under subsection (6) or of the retained amount under subsection (8).
(4) The “basic amount”—
(a) if the first lifetime allowance condition is met, is the amount by which the amount crystallised by the benefit crystallisation event exceeds the amount of the individual’s lifetime allowance available on it, and
(b) if the second lifetime allowance charge condition is met, is the amount crystallised by the benefit crystallisation event.
(5) The “lump-sum amount” is the aggregate of—
(a) so much of the basic amount as is paid as a lump sum to the individual or a lump sum death benefit in respect of the individual, and
(b) any amount which is treated as forming part of the lump-sum amount under subsection (6).
(6) If and to the extent that the tax payable under this section on any of the lump-sum amount is covered by a scheme-funded tax payment, it is to be treated as itself forming part of the lump-sum amount.
(7) The “retained amount” is the aggregate of—
(a) so much of the basic amount as is not paid as a lump sum to the individual or a lump sum death benefit in respect of the individual, and
(b) any amount which is treated as forming part of the retained amount under subsection (8).
(8) If and to the extent that the tax payable under this section on any of the retained amount is covered by a scheme-funded tax payment, it is to be treated as itself forming part of the retained amount.
(9) An amount of tax payable under this section is “covered by a scheme-funded tax payment” if—
(a) the tax is paid by the scheme administrator, and
(b) the individual’s rights under the pension scheme are not reduced so as fully to reflect the amount of the payment of tax.
(10) Whether the individual’s rights under the pension scheme are reduced so as fully to reflect the amount of the payment of tax is to be determined in accordance with normal actuarial practice.
(11) The chargeable amount is not to be treated as income for any purpose of the Tax Acts.
Finance Act 2004