(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, ...
(c) a drawdown pension fund lump sum death benefit, or
(d) a flexi-access drawdown fund lump sum death benefit,
is paid , to a non-qualifying person, by a registered pension scheme in respect of a member who had reached the age of 75 at the date of the member's death.
(1ZA) In subsection (1) the reference to a member (and to the member's death) are to be read—
(a) in relation to—
(i) a drawdown pension fund lump sum death benefit under paragraph 17(2) of Schedule 29, or
(ii) a flexi-access drawdown fund lump sum death benefit under paragraph 17A(2) of Schedule 29,
as a reference to a dependant (and to the dependant's death),
(b) in relation to a flexi-access drawdown fund lump sum death benefit under paragraph 17A(3) of Schedule 29, as a reference to a nominee (and to the nominee's death), and
(c) in relation to a flexi-access drawdown fund lump sum death benefit under paragraph 17A(4) of Schedule 29, as a reference to a successor (and to the successor's death).
(1A) The special lump sum death benefits charge also arises where—
(a) a defined benefits lump sum death benefit, or
(b) an uncrystallised funds lump sum death benefit,
is paid , to a non-qualifying person, by a registered pension scheme in respect of a member who had reached the age of 75 at the date of the member's death.
(1B) The special lump sum death benefits charge also arises where—
(a) a lump sum death benefit is paid , to a non-qualifying person, by a registered pension scheme in respect of a member of the scheme who had not reached the age of 75 at the date of the member's death,
(b) the lump sum death benefit is—
(i) a drawdown pension fund lump sum death benefit under paragraph 17(1) of Schedule 29,
(ii) a flexi-access drawdown fund lump sum death benefit under paragraph 17A(1) of Schedule 29,
(iia) a defined benefits lump sum death benefit,or
(iii) an uncrystallised funds lump sum death benefit, and
(c) the lump sum death benefit is not paid before the end of the period of two years beginning with the earlier of the day on which the scheme administrator of the scheme first knew of the member's death and the day on which the scheme administrator could first reasonably have been expected to have known of it.
(1C) The special lump sum death benefits charge also arises where—
(a) a lump sum death benefit is paid , to a non-qualifying person, by a registered pension scheme on the death of a dependant, nominee or successor of a deceased member of the scheme,
(b) the dependant, nominee or successor (“the beneficiary”) had not reached the age of 75 at the date of the beneficiary's death,
(c) the lump sum death benefit is—
(i) a drawdown pension fund lump sum death benefit under paragraph 17(2) of Schedule 29, or
(ii) a flexi-access drawdown fund lump sum death benefit under paragraph 17A(2), (3) or (4) of Schedule 29, and
(d) the lump sum death benefit is not paid before the end of the period of two years beginning with the earlier of the day on which the scheme administrator of the scheme first knew of the beneficiary's death and the day on which the scheme administrator could first reasonably have been expected to have known of it.
(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 ... ... in the United Kingdom.
(4) The rate of the charge is 45% 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) A lump sum death benefit 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 (but see subsection (8)).
(8) Where—
(a) a lump sum death benefit in respect of which tax is charged under this section is one paid to a non-qualifying person in the person's capacity as a trustee, and
(b) a payment of any part of the lump sum is made out of a settlement to a beneficiary who is an individual,
the amount received by the beneficiary, together with so much of the tax charged under this section on the lump sum as is attributable to the amount received by the beneficiary, is income of the beneficiary for income tax purposes but the beneficiary may claim to deduct that much of that tax from the income tax charged on the beneficiary's total income for the tax year in which the payment is made to the beneficiary.
(9) For the purposes of this section, a person is a “non-qualifying person” in relation to payment of a lump sum if—
(a) the person is not an individual, or
(b) the person is an individual and the payment is made to the person in the person's capacity as—
(i) a trustee or personal representative,
(ii) a director of a company,
(iii) a partner in a firm, or
(iv) a member of a limited liability partnership,
except that a person is not a “non-qualifying person” in relation to payment of a lump sum if the payment is made to the person in the person's capacity as a bare trustee.
(10) In subsection (9)—
“bare trustee” means a person acting as trustee for—
an individual absolutely entitled as against the trustee,
two or more individuals who are so entitled,
an individual who would be so entitled but for being a minor or otherwise lacking legal capacity, or
two or more individuals who would be so entitled but for all or any of them being a minor or otherwise lacking legal capacity,
“director” is read in accordance with section 452 of CTA 2010, and
references to a firm are to be read in the same way as references to a firm in Part 9 of ITTOIA 2005 (which contains special provision about partnerships).
206A Partial repayment of section 206 charge where IHT paid by recipient of benefit
(1) This section applies where—
(a) a registered pension scheme pays a lump sum death benefit in respect of a deceased member to a non-qualifying person,
(b) a liability to the lump sum death benefits charge arises in respect of the lump sum death benefit,
(c) at any time (whether before or after the payment of the lump sum death benefit)—
(i) the non-qualifying person pays an amount of inheritance tax that is attributable to the value of the deceased’s notional pension property, or
(ii) the deceased’s personal representatives pay an amount of inheritance tax that is so attributable and pass on the burden of that payment to the non-qualifying person, and
(d) the non-qualifying person makes an application under this section for a reduction in the lump sum death benefits charge.
(2) Section 206 applies in relation to the lump sum death benefit as if the amount of the benefit that was paid to the non-qualifying person were the amount in fact paid, reduced by the amount of inheritance tax paid as mentioned in subsection (1)(c).
(3) If and to the extent that the amount of the lump sum death benefits charge paid in respect of the lump sum death benefit exceeds the amount of the liability (as recalculated as a result of subsection (2)), the excess must be repaid to the non-qualifying person (and may not be repaid to the scheme administrator).
(4) An application under this section is of no effect unless it complies with such requirements as to timing, form and content as may be prescribed by the Commissioners.
(5) For the purposes of subsection (1)(c) the deceased’s personal representatives “pass on the burden” of a payment of inheritance tax to the non-qualifying person if—
(a) the personal representatives pay a sum to the non-qualifying person out of the deceased’s estate that has been reduced by the amount of inheritance tax, or
(b) the non-qualifying person reimburses the personal representatives that amount.
(6) In this section—
“the Commissioners” means the Commissioners for His Majesty’s Revenue and Customs;
“inheritance tax” includes interest on inheritance tax;
“non-qualifying person” has the same meaning as in section 206.
206B Supplementary charge on refund of overpaid IHT
(1) This section applies where—
(a) a registered pension scheme pays a lump sum death benefit in respect of a deceased member to a non-qualifying person,
(b) a liability to the lump sum death benefits charge arises in respect of the lump sum death benefit,
(c) an amount of inheritance tax that is attributable to the value of notional pension property of the deceased member is paid,
(d) some or all of the inheritance tax paid as mentioned in paragraph (c) is subsequently—
(i) repaid under section 241(1) of that Act to the non-qualifying person, or
(ii) repaid under that section to the deceased’s personal representatives and passed on by the personal representatives to the non-qualifying person, and
(e) in a case in which the payment mentioned in paragraph (c) was made by the non-qualifying person or by the deceased’s personal representatives, the non-qualifying person has made an application under section 206A in relation to the lump sum death benefit.
(2) A charge to income tax arises in respect of the relevant amount.
(3) In subsection (2) “the relevant amount” means—
(a) in a case in which the payment of inheritance tax mentioned in subsection (1)(c) is made by the scheme administrator, the amount of the payment made to the non-qualifying person mentioned in subsection (1)(d)(i) or (ii);
(b) in a case in which the payment of inheritance tax mentioned in subsection (1)(c) is made by the non-qualifying person, or by the deceased’s personal representatives, the lesser of—
(i) the amount of the payment made to the non-qualifying person mentioned in subsection (1)(d)(i) or (ii), and
(ii) the repayment made under section 206A to the non-qualifying person in relation to the lump sum death benefit.
(4) The person liable to the charge is the non-qualifying person.
(5) The rate of the charge is the same as the rate of the special lump sum death benefits charge (see section 206(4)).
(6) In this section—
“inheritance tax” includes interest on inheritance tax;
“non-qualifying person” has the same meaning as in section 206.
(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 ... ... in the United Kingdom.
(4) The rate of the charge is 25% 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.
(6A) Subsection (1) does not apply to an authorised surplus payment to the extent that the payment is funded (directly or indirectly) by a surrender of (or an agreement to surrender) benefits or rights which results in the registered pension scheme being treated as making an unauthorised payment under section 172A.
(6B) Terms used in subsection (6A) which are defined in section 172A have the same meaning as they have in that section.
(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 to or in respect of a person before the person's death, is the person,
(b) in the case of an unauthorised member payment made in respect of a person after the person's death, is the recipient, and
(c) in the case of an unauthorised employer payment, is the person 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... ... in the United Kingdom.
(5) The rate of the charge is 40% in respect of the unauthorised payment.
(6) The Treasury may by order amend subsection (5) so as to vary the rate of the unauthorised payments charge.
(6A) An order under subsection (6) may make provision for there to be different rates in different circumstances.
(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 to or in respect of a person before the person's death, is the person,
(b) in the case of a surchargeable unauthorised member payment made in respect of a person after the person's death, is the recipient, and
(c) in the case of a surchargeable unauthorised employer payment, is the person 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, ...
(c) the scheme administrator, and
(d) the sub-scheme administrator,
are resident ... ... 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 amend subsection (6) so as to vary the rate of the unauthorised payments surcharge.
(8) An order under subsection (7) may make provision for there to be different rates in different circumstances.
(1) This section identifies which unauthorised member payments made by a registered pension scheme to or in respect of a person who is or has been a member of 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 to or in respect of the person 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 to or in respect of the person.
(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 to or in respect of the person.
(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 to or in respect of the person on or after the reference date.
(9) The percentage of the pension fund used up on the occasion of an unauthorised member payment is—
UMP
VR
×
100
where—
UMP is the amount of the unauthorised member payment, and
VR is an amount equal to the aggregate of the value of the member's rights under arrangements relating to the member under the pension scheme when the unauthorised payment is made (or, if the unauthorised member payment is made after the member has died or has otherwise ceased to be a member of the pension scheme, at the date when the member died or otherwise ceased to be a member).
(10) The value of the member’s rights under an arrangement on any 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.
211 Valuation of crystallised rights for purposes of section 210
(1) The value of the member’s crystallised rights under an 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, ...
(b) the aggregate of the amount of the sums, and the market value of the assets, representing the member's drawdown pension fund in respect of the arrangement on that date (if any), and
(c) the aggregate of the amount of the sums, and the market value of the assets, representing the member's flexi-access drawdown 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.
212 Valuation of uncrystallised rights for purposes of section 210
(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 drawdown pension fund or the member's flexi-access drawdown fund.
(3) The value of the member’s uncrystallised rights under an 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 that is neither a cash balance arrangement nor a collective money purchase arrangement,
(c) in accordance with subsection (6) if the arrangement is a defined benefits arrangement or a collective money purchase 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—
(
RVF
×
ARP
)
+
LS
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 (“the hybrid value”) is to be calculated by taking the following steps—
Step 1 In relation to each relevant variety of benefits, calculate (in accordance with the preceding provisions of this section) the value of the member's uncrystallised rights on the date, assuming that benefits of that variety are provided under the arrangement.
Step 2 The hybrid value is the higher or highest of the amounts determined under step 1.”
(8) For the purposes of this section a variety of benefits is “relevant” in relation to a hybrid arrangement if, in any circumstances, benefits of that variety may be provided under the arrangement.
(9) In this section “variety of benefits” means a variety of benefits specified in section 152(10).
(1) This section identifies which unauthorised employer payments made by a registered pension scheme to or in respect of a person who is or has been 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 person 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 person.
(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 person.
(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 person on or after the reference date.
(9) The percentage of the pension fund used up on the occasion of an unauthorised employer payment is—
UEP
AA
×
100
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 annual allowance charge, arises where an individual who is a member of one or more registered pension schemes has a non-zero chargeable amount for a tax year.
(1A) The chargeable amount ... is to be determined in accordance with section 227ZA.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) The annual allowance charge is a charge at the appropriate rate in respect of the chargeable amount.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4A) The appropriate rate is—
(a) the basic rate ... in relation to so much (if any) of the chargeable amount 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,
(b) the higher rate ... in relation to so much (if any) of the chargeable amount 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
(c) the additional rate ... in relation to so much (if any) of the chargeable amount as, when so added, exceeds the higher rate limit for the tax year.
But subsection (4AA) applies in the case of a Scottish taxpayer and subsection (4AB) applies in the case of a Welsh taxpayer.
(4AA) The appropriate rate for a Scottish taxpayer is—
(a) where the only Scottish rate is the Scottish basic rate (the “SBR”), that rate, or
(b) where there is more than one Scottish rate—
(i) the SBR in relation to so much (if any) of the chargeable amount as, when added to the individual’s reduced net income for the tax year, does not exceed the Scottish basic rate limit (“SBRL”) for the tax year,
(ii) the next highest rate after the SBR in relation to so much (if any) of the chargeable amount as, when so added, exceeds the SBRL for the tax year but does not exceed the rate limit for that rate for the tax year, and
(iii) where applicable, any other higher Scottish rate in relation to so much (if any) of the chargeable amount as, when so added, does not exceed the rate limit for that rate for the tax year.
(4AB) The appropriate rate for a Welsh taxpayer is—
(a) the Welsh basic rate in relation to so much (if any) of the chargeable amount 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,
(b) the Welsh higher rate in relation to so much (if any) of the chargeable amount 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
(c) the Welsh additional rate in relation to so much (if any) of the chargeable amount 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 individual for the tax year.
(4C) Where—
(a) the basic rate limit,
(b) the higher rate limit,
(c) the Scottish basic rate limit, or
(d) any other Scottish rate limit,
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 subsections (4A) , (4AA) and (4AB) are to the limit as so increased.
(5) The chargeable amount is not to be treated as income for any purpose of the Tax Acts.
(5A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) The following sections make further provision about the annual allowance charge—
sections 227ZA and 227B (chargeable amount),
sections 227C to 227G (supplemental provision for calculations under section 227B),
section 228 (annual allowance),
section 229(1) (total pension input amount to be aggregate of pension input amounts for pension input periods ending in tax year),
section 229(2) to (4) (how to arrive at the pension input amount in respect of an arrangement),
sections 230 to 237 (pension input amounts),
sections 237A to 237F (persons liable to charge), and
section 238 (pension input period).
(7) Schedule 36 contains (in Part 4) transitional provision about the annual allowance charge.