Office of Public Sector Information
(1) A charge to income tax arises where a person becomes entitled to a social security pension lump sum.
(2) For the purposes of the Tax Acts (including subsection (5)) a social security pension lump sum—
(a) is to be treated as income, but
(b) is not to be taken into account in determining the total income of any person.
(3) The person liable to a charge under this section is the person (“P”) entitled to the lump sum, whether or not P is resident, ordinarily resident or domiciled in the United Kingdom.
(4) The charge is imposed on P for the applicable year of assessment (see subsection (6)).
(5) A charge under this section is a charge in respect of the amount of the lump sum at the following rate—
(a) if P’s total income for the applicable year of assessment is nil, 0%;
(b) if P’s total income for that year of assessment is greater than nil but does not exceed the starting rate limit for that year, the starting rate for that year;
(c) if P’s total income for that year of assessment exceeds the starting rate limit but does not exceed the basic rate limit for that year, the basic rate for that year;
(d) if P’s total income for that year of assessment exceeds the basic rate limit for that year, the higher rate for that year.
(6) Section 8 makes provision as to the meaning of “the applicable year of assessment” for the purposes of this section.
(7) Section 9 contains further definitions and makes provision as to commencement.
(8) Section 10 contains consequential amendments.
(1) For the purposes of section 7 “the applicable year of assessment” has the meaning given by this section.
(2) Subject to subsections (5) to (7), the applicable year of assessment is—
(a) the year of assessment in which the first benefit payment day falls, or
(b) if P dies before the beginning of that year of assessment, the year of assessment in which P dies.
(3) For the purposes of subsection (2) “the first benefit payment day” is, subject to subsection (4), the day as from which P's—
(a) Category A or Category B retirement pension,
(b) shared additional pension, or
(c) graduated retirement benefit,
becomes payable following the period of deferment by virtue of which P’s entitlement to the lump sum arises.
(4) But where—
(a) the lump sum is a state pension lump sum to which P is entitled under paragraph 7A of Schedule 5 to SSCBA 1992 or paragraph 7A of Schedule 5 to SSCB(NI)A 1992 or a graduated retirement benefit lump sum to which P is entitled under a provision corresponding to either of those paragraphs, and
(b) at the time of S’s death, P was entitled to a Category A or Category B retirement pension or (as the case may be) graduated retirement benefit,
the first benefit payment day is the day on which S died; and for this purpose “S” is the person by virtue of whose period of deferment P’s entitlement to the lump sum arises.
(5) Subsections (6) and (7) apply where social security regulations make provision enabling the making of an election for a social security pension lump sum to be paid in the year of assessment (“the later year of assessment”) next following that given by subsection (2).
(6) If such an election is made by P and is not revoked, the applicable year of assessment is—
(a) the later year of assessment, or
(b) if P dies before the beginning of that year of assessment, the year of assessment in which P dies.
(7) If—
(a) P dies after the beginning of the later year of assessment,
(b) by the time of P’s death, P has not notified the Secretary of State as to whether or not P wishes to make such an election,
(c) social security regulations make provision enabling the making of such an election in such a case by the personal representatives of P, and
(d) P’s personal representatives make such an election in accordance with the regulations,
the applicable year of assessment is the later year of assessment.
(8) For the purposes of determining the applicable year of assessment, it does not matter when the lump sum is actually paid.
(9) In this section—
“Category A or Category B retirement pension” means Category A or Category B retirement pension under Part 2 of SSCBA 1992 or Part 2 of SSCB(NI)A 1992;
“graduated retirement benefit” means graduated retirement benefit under section 36 or 37 of NIA 1965 or section 35 or 36 of NIA(NI) 1966;
“shared additional pension” means shared additional pension under Part 2 of SSCBA 1992 or Part 2 of SSCB(NI)A 1992;
“social security regulations” means any regulations under—
the Social Security Administration Act 1992 (c. 5), or
the Social Security Administration (Northern Ireland) Act 1992 (c. 8).
(10) This section is to be construed as one with section 7.
(1) In sections 7 and 8 “social security pension lump sum” means—
(a) a state pension lump sum,
(b) a shared additional pension lump sum, or
(c) a graduated retirement benefit lump sum.
(2) In section 8 and this section—
“graduated retirement benefit lump sum” means a lump sum payable under—
section 36 or 37 of NIA 1965, or
section 35 or 36 of NIA(NI) 1966;
“shared additional pension lump sum” means a lump sum payable under—
section 55C of, and Schedule 5A to, SSCBA 1992, or
section 55C of, and Schedule 5A to, SSCB(NI)A 1992;
“state pension lump sum” means a lump sum payable under—
section 55 of, and Schedule 5 to, SSCBA 1992, or
section 55 of, and Schedule 5 to, SSCB(NI)A 1992.
(3) In section 8 and this section—
“NIA 1965” means the National Insurance Act 1965 (c. 51);
“NIA(NI) 1966” means the National Insurance Act (Northern Ireland) 1966 (c. 6 (N.I.));
“SSCBA 1992” means the Social Security Contributions and Benefits Act 1992 (c. 4);
“SSCB(NI)A 1992” means the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7).
(4) Sections 7 and 8 and this section have effect in relation to the year 2006-07 and subsequent years of assessment.
(1) ITEPA 2003 is amended as follows.
(2) In section 577 (UK social security pensions) after subsection (1) insert—
“(1A) But this section does not apply to any social security pension lump sum (within the meaning of section 7 of F(No.2)A 2005).”.
(3) In section 683 (PAYE income) in subsection (3) (meaning, subject to subsection (4), of “PAYE pension income”) in the opening words, for “subsection (4)” substitute “subsections (3A) and (4)”.
(4) In that section, after subsection (3) insert—
“(3A) “PAYE pension income” for a tax year also includes any social security pension lump sum (within the meaning of section 7 of F(No.2)A 2005) in respect of which a charge to income tax arises under that section for that tax year.”.
(5) In section 686 (meaning of “payment”) in subsection (1) (rules as to when payment of, or on account of, PAYE income is to be treated as made for the purposes of PAYE regulations) at the end of the subsection insert—
“But this is subject to subsection (5) (PAYE pension income: social security pension lump sums).”.
(6) In that section, after subsection (4) insert—
“(5) For the purposes of PAYE regulations, a payment of, or on account of, an amount which is PAYE pension income of a person by virtue of section 683(3A) (social security pension lump sums) is to be treated as made at the time when the payment is made.”.
(7) In Schedule 1 (abbreviations and defined expressions) in Part 1 (abbreviations of Acts and instruments) insert at the end—
| “F(No.2)A 2005 | The Finance (No. 2) Act 2005 (c. 22)”. |
(1) For section 25(5E) to (5G) of FA 1990 (donations to charity by individuals: benefits: disregard of certain rights of admission) substitute—
“(5E) In determining whether a gift to a charity is a qualifying donation the benefit of any right of admission received in consequence of the gift shall be disregarded if subsections (5F) to (5H) are satisfied in relation to the right.
(5F) This subsection is satisfied if the opportunity to make a gift and to receive the right of admission in consequence is available to the public.
(5G) This subsection is satisfied if the right of admission is a right granted by the charity for the purpose of viewing property preserved, maintained, kept or created by a charity in pursuance of its charitable purposes, including, in particular—
(a) buildings,
(b) grounds or other land,
(c) plants,
(d) animals,
(e) works of art (but not performances),
(f) artefacts, and
(g) property of a scientific nature.
(5H) This subsection is satisfied if—
(a) the right of admission applies, during a period of at least one year, at all times at which the public can obtain admission, or
(b) a member of the public could purchase the same right of admission and the amount of the gift is greater by at least 10% than the amount which he would have to pay.
(5I) In subsection (5E) “right of admission” means a right of admission—
(a) of the person who makes the gift or of that person and one or more members of his family (whether or not the right must be exercised by all those persons at the same time),
(b) to premises or property to which the public are admitted on payment of an admission fee, and
(c) without payment of the admission fee or on payment of a reduced fee;
and in the application of subsection (5H)(b) “the same right of admission” means a right relating to the same property, classes of person and periods of time as the right received in consequence of the gift.
(5J) For the purposes of subsection (5H)(a) a right of admission shall be treated as applying at all times at which the public can obtain admission despite the fact that the right does not apply on days specified by the charity, being days on each of which an event is to take place on the premises to which the right relates; provided that no more than 5 days are specified for that purpose in relation to—
(a) the period during which the right applies, in the case of a period of one year, or
(b) each calendar year during all or part of which the right applies, in the case of a right applying for a period of more than one year.”
(2) This section shall have effect in relation to gifts made on or after 6th April 2006.
Schedule 2 contains amendments relating to employee securities.
(1) Section 508 of ICTA (tax exemption for scientific research organisations) is amended as follows.
(2) In subsection (1) (Associations undertaking scientific research and approved by Secretary of State), for paragraph (a) substitute—
“(a) an Association has as its object the undertaking of research and development which may lead to or facilitate an extension of any class or classes of trade; and”.
(3) In that subsection, for “, be allowed in the case of the Association” substitute “in relation to any accounting period, be allowed in the case of the Association for that accounting period”.
(4) After that subsection insert—
“(1A) The Treasury may by regulations prescribe circumstances in which the conditions in subsection (1) above shall be deemed not to be complied with.
(1B) The Treasury may by regulations make provision specifying for the purposes of paragraph (a) of that subsection—
(a) what shall be deemed to be, or not to be, an Association,
(b) circumstances in which an Association shall be deemed to have, or not to have, the undertaking of research and development as its object,
(c) circumstances in which the undertaking of research and development shall be deemed to be, or not to be, capable of leading to or facilitating an extension of a class of trade, or
(d) what shall be deemed to be, or not to be, a class of trade.”
(5) For subsection (3) (meaning of “scientific research”) substitute—
“(3) Section 837A (meaning of “research and development”) applies for the purposes of subsection (1)(a) above.
(4) Regulations under subsection (3) of that section (power to prescribe activities which are, or are not, research and development) may make provision for the purposes of that section as it applies by virtue of subsection (3) of this section which is additional to, or different from, the provision made otherwise for the purposes of that section.”
(6) This section has effect in relation to accounting periods beginning on or after such day as the Treasury may by order made by statutory instrument appoint.
(1) Section 88 of ITTOIA 2005 (income tax deduction for payments to research associations etc.) is amended as follows.
(2) In subsection (1) (conditions for deduction), for the words from the beginning of paragraph (a) to “research” in paragraph (b) substitute—
“(a) pays any sum to an Association in the case of which exemption may be claimed under section 508 of ICTA and which has as its object the undertaking of research and development which may lead to or facilitate an extension of the class of trade to which the trade carried on by the person belongs, or
(b) pays any sum to be used for scientific research related to that class of trade”.
(3) In subsection (4), omit paragraph (a) (meaning of “approved” in relation to scientific research association).
(4) In subsection (5) (references to scientific research related to a class of trade), for “references in this section” substitute “reference in subsection (1)(b)”.
(5) This section has effect in relation to sums paid to an Association during any accounting period of the Association beginning on or after the day appointed under section 13(6).
(1) Section 82B of ICTA (corporation tax deduction for payments to research associations etc.) is amended as follows.
(2) In subsection (1) (conditions for deduction), for the words from the beginning of paragraph (a) to “above” in paragraph (b) substitute—
“(a) pays any sum to an Association in the case of which exemption may be claimed under section 508 and which has as its object the undertaking of research and development which may lead to or facilitate an extension of the class of trade to which the trade carried on by the company belongs, or
(b) pays any sum to be used for scientific research related to that class of trade”.
(3) In subsection (3) (reference to scientific research related to a class of trade), for “this section” substitute “subsection (1)(b) above”.
(4) This section has effect in relation to sums paid to an Association during any accounting period of the Association beginning on or after the day appointed under section 13(6).
After section 468 of ICTA (authorised unit trust schemes) insert—
(1) In relation to an open-ended investment company the rate of corporation tax for the financial year 2005 and subsequent financial years shall be deemed to be the rate at which income tax at the lower rate is charged for the year of assessment which begins on 6th April in the financial year concerned (and sections 13, 13AA and 13AB shall not apply).
(2) In this section “open-ended investment company” means a company incorporated in the United Kingdom to which section 236 of the Financial Services and Markets Act 2000 applies.
(3) Each of the parts of an umbrella company shall be regarded for the purposes of this section as an open-ended investment company and the umbrella company as a whole shall not be so regarded (and shall not, unless an enactment expressly provides otherwise, be regarded as a company for any other purpose of the Tax Acts).
(4) In subsection (3) “umbrella company” means an open-ended investment company—
(a) in respect of which the instrument of incorporation provides arrangements for separate pooling of the contributions of the shareholders and the profits or income out of which payments are to be made to them, and
(b) the shareholders of which are entitled to exchange rights in one pool for rights in another,
and a reference to part of an umbrella company is a reference to a separate pool.”
(1) The following provisions shall cease to have effect—
(a) sections 468H to 468Q of ICTA (authorised unit trusts),
(b) paragraphs 2A and 2B of Schedule 10 to FA 1996 (authorised unit trusts and open-ended investment companies: loan relationships),
(c) paragraphs 32 and 33 of Schedule 26 to FA 2002 (collective investment schemes: derivative contracts),
(d) section 373(4) and (6) of ITTOIA 2005 (open-ended investment company: interest distributions), and
(e) section 376(4) and (6) of ITTOIA 2005 (authorised unit trust: interest distributions).
(2) In this Chapter “authorised investment funds” means—
(a) authorised unit trust schemes, and
(b) open-ended investment companies.
(3) The Treasury may, by regulations—
(a) make provision about the treatment of authorised investment funds for the purposes of an enactment relating to taxation;
(b) provide for the modification of an enactment relating to taxation in its application in relation to—
(i) authorised investment funds,
(ii) shareholders or unit holders in authorised investment funds, or
(iii) transactions involving authorised investment funds;
(c) impose requirements on persons responsible for the management of an authorised investment fund in relation to the provision of information, the form of accounts, the keeping of records or other administrative matters.
(4) For the purposes of this Chapter—
(a) “unit trust scheme” has the meaning given by section 237 of the Financial Services and Markets Act 2000 (c. 8),
(b) a unit trust scheme is authorised in relation to an accounting period if an order under section 243 of the Financial Services and Markets Act 2000 is in force in relation to that scheme during the whole or part of that accounting period,
(c) “unit holder” means a person entitled to a share of the investments subject to the trusts of a unit trust scheme,
(d) a reference to a shareholder or unit holder includes a person beneficially entitled to shares or units (and a reference to owning units or shares shall be construed accordingly),
(e) “open-ended investment company” means a company incorporated in the United Kingdom to which section 236 of the Financial Services and Markets Act 2000 applies,
(f) “associate” has the meaning given by section 417 of ICTA,
(g) “net asset value” means the value of the assets of the authorised investment fund, after the deduction of specified liabilities,
(h) a reference to a distribution includes investing an amount on behalf of a unit holder or shareholder in respect of his accumulation units or accumulation shares,
(i) “distribution accounts” means accounts showing—
(i) the total amount available for distribution to unit holders or shareholders, and
(ii) how that amount is computed,
(j) the “distribution date” for a distribution period in relation to an authorised investment fund means—
(i) the date specified by or in accordance with the terms of the trust or the instrument of incorporation of the company for any distribution for that distribution period, or
(ii) if no date is specified, the last day of that distribution period,
(k) “distribution period” in relation to an authorised investment fund means a period by reference to which the total amount available for distribution to unit holders or shareholders is ascertained,
(l) “umbrella company” has the meaning given by section 468A of ICTA,
(m) “umbrella scheme” has the meaning given by section 468 of ICTA, and
(n) section 839 of ICTA (connected persons) applies.
(1) Regulations under section 17(3)(a) or (b) may make provision about distributions which may, in particular—
(a) require an authorised investment fund to comply with prescribed rules for determining (whether by reference to a formula or otherwise) what proportion of an amount shown in distribution accounts as available for distribution is to be distributed by way of dividends and what proportion is to be distributed by way of yearly interest;
(b) permit persons responsible for the management of an authorised investment fund to elect to distribute entirely by way of dividends;
(c) require distribution accounts to show the amount available for distribution—
(i) by way of dividends;
(ii) by way of yearly interest;
(d) allow a distribution of yearly interest for a distribution period to be deducted, in the prescribed manner, in computing the profits of the authorised investment fund for the accounting period in which the last day of that distribution period falls;
(e) make provision for determining the distribution date in relation to a distribution period of an authorised investment fund;
(f) permit distributions to be made, in prescribed circumstances, to or for the benefit of a person not ordinarily resident in the United Kingdom without deducting tax;
(g) permit distributions to be made without deducting tax, in prescribed circumstances, to a person ordinarily resident in the United Kingdom who is unlikely to be liable to pay an amount by way of income tax for the year of assessment in which the distribution is made;
(h) include provision, in respect of a unit holder or shareholder who is within the charge to corporation tax, about—
(i) the liability to corporation tax resulting from receipt of a distribution, and
(ii) the method of computing that liability.
(2) Regulations under section 17(3)(a) or (b) may, in particular—
(a) make special provision for loan relationships held by an authorised investment fund;
(b) make special provision for derivative contracts held by an authorised investment fund;
(c) modify the meaning of “relevant holding” for the purposes of—
(i) paragraph 4 of Schedule 10 to FA 1996 (loan relationships), and
(ii) paragraph 36 of Schedule 26 to FA 2002 (derivative contracts);
(d) make special provision in relation to the treatment of umbrella companies and umbrella schemes (or shareholders or unit holders in umbrella companies or umbrella schemes);
(e) prohibit action which favours a class of unit holders or shareholders.
(3) Regulations under section 17(3)(a) or (b) may, in particular—
(a) make special provision in relation to a person who, alone or together with associates or connected persons, owns (otherwise than as a nominee) units or shares, in a fund designated by the Financial Services Authority as a Qualified Investor Scheme, which represent 10% or more (or such other percentage as the regulations may specify) of the net asset value of the fund;
(b) include exceptions from provision made by virtue of paragraph (a) above including, in particular, an exception relating to units or shares held—
(i) by a charity (within the meaning of section 506(1) of ICTA),
(ii) by a registered pension scheme (within the meaning of section 150 of FA 2004),
(iii) by an insurance company (within the meaning of section 431(2) of ICTA) as assets of its long-term insurance fund (within the meaning of that section), or
(iv) by such other persons, in such circumstances, as the regulations may specify.
(4) Regulations under section 17(3)(c) may, in particular, require persons responsible for the management of an authorised investment fund to supply information to, and make available books, documents and other records for inspection by, the Commissioners for Her Majesty’s Revenue and Customs.
(5) Regulations under section 17(3) may, in particular—
(a) amend a reference in an enactment to a provision repealed by section 17(1);
(b) make different provision for different circumstances;
(c) make incidental, consequential, supplemental or transitional provision.
(1) Section 17(1) shall come into force on such day as the Treasury may appoint by order.
(2) An order under subsection (1) may—
(a) commence only a specified repeal;
(b) commence different repeals at different times;
(c) commence a repeal at different times for different purposes;
(d) include savings.
(3) Regulations under section 17(3) shall be subject to annulment by a resolution of the House of Commons.
(4) But the first set of regulations under section 17(3) may not be made unless a draft has been laid before and approved by resolution of the House of Commons.
Finance (No. 2) Act 2005