Finance Act 2004

Lump sum rights exceeding £375,000: primary and enhanced protection U.K.

24 (1) If the lump sum condition and the registration condition are met in relation to an individual— U.K.

(a) paragraphs 27 to 29 (which modify Schedule 29 [F1 and paragraph 12 of this Schedule] in relation to pension commencement lump sums), and

[F2 (b) paragraph 29A (which makes provision modifying the value of the individual’s lump sum allowance),]

apply in relation to the individual.

(2) The lump sum condition is met if on 5th April 2006 the amount of an individual’s total lump sum rights exceeds £375,000 (25% of the standard lifetime allowance for the tax year 2006-07).

(3) Paragraph 25 defines the amount of an individual’s total lump sum rights on that date.

(4) The registration condition is met if either or both of the notice requirements is met.

(5) The first notice requirement is met if notice of intention to rely on paragraph 7 (primary protection) is given to the Inland Revenue in accordance with regulations under that paragraph in relation to the individual.

(6) The second notice requirement is met if notice of intention to rely on paragraph 12 (enhanced protection) is given to the Inland Revenue in accordance with regulations under that paragraph in relation to the individual.

Textual Amendments

F1 Words in Sch. 36 para. 24(1)(a) inserted (for the tax year 2024-25 and subsequent tax years) by Finance Act 2024 (c. 3), Sch. 9 paras. 81(2), 124 (with Sch. 9 paras. 125-132A) (as amended by S.I. 2024/356, regs. 1, 4)

F2 Sch. 36 para. 24(1)(b) substituted (for the tax year 2024-25 and subsequent tax years) by Finance Act 2024 (c. 3), Sch. 9 paras. 81(3), 124 (with Sch. 9 paras. 125-132A) (as amended by S.I. 2024/356, regs. 1, 4)

25 (1) The amount of an individual’s total lump sum rights on 5th April 2006 is— U.K.

where—

VCPR is the value of the individual’s relevant crystallised pension rights on 5th April 2006, calculated in accordance with paragraph 10, and

VULSR is the value of the individual’s relevant uncrystallised lump sum rights on that date.

(2) The value of the individual’s relevant uncrystallised lump sum rights on 5th April 2006 is the aggregate value of the individual’s uncrystallised lump sum rights on that date under each relevant pension arrangement relating to the individual.

(3) An uncrystallised lump sum right is a right to a lump sum which on 5th April 2006 is prospective (rather than actual).

(4) An arrangement is a “relevant pension arrangement”if it is an arrangement under a pension scheme within paragraph 1(1).

(5) The value of the individual’s uncrystallised lump sum rights under an arrangement on 5th April 2006—

(a) in the case of an arrangement under a pension scheme falling within paragraph 1(1)(f), is 25% of the value of the funds held for the purposes of the arrangement on that date, and

(b) in the case of any other arrangement, is an amount calculated in accordance with sub-paragraph (6).

(6) The amount is the amount of any lump sum to which the individual would have been entitled under the arrangement on 5th April 2006 on the assumption that the individual became entitled to the present payment of a lump sum under the arrangement on that date.

(7) In calculating an amount in accordance with sub-paragraph (6) the valuation assumptions apply but as if the reference to such age (if any) as must have been reached to avoid any reduction in benefits on account of age in paragraph (a) of section 277 were to the relevant age; and for this purpose “the relevant age” is—

(a) if on 10th December 2003 the terms of the arrangement made provision for a reduction in the amount of benefits payable in respect of rights under the arrangement on account of the holder of the rights being below a particular age, that age, and

(b) otherwise, 60.

26 (1) This paragraph applies if any of the individual’s uncrystallised lump sum rights on 5th April 2006 are rights under one or more arrangements under a pension scheme or schemes within paragraph 1(1)(a) to (d). U.K.

(2) The value of the individual’s uncrystallised lump sum rights on 5th April 2006 under the arrangement, or the aggregate of the values of the individual’s uncrystallised lump sum rights on 5th April 2006 under such of the arrangements as relate to a particular employment, is F3 ...—

(a) the value, or the aggregate of the values, calculated under paragraph 25, [F4 or (if lower)]

(b) the maximum permitted lump sum.

(3) “The maximum permitted lump sum” means

[F5 (a) in the case of an arrangement under a pension scheme which immediately before 6th April 2006 was within section [F6 611A(1)(a)] of ICTA, the maximum lump sum that could be paid to the individual under the pension scheme on 5th April 2006, and

(b) in any other case,]

the maximum lump sum that could be paid to the individual on 5th April 2006 under the arrangement or arrangements if it or they were made under a pension scheme within paragraph 1(1)(a) without giving the Board of Inland Revenue grounds for withdrawing approval of the pension scheme under section 591B of ICTA.

(4) For the purposes of sub-paragraph (3) it is to be assumed—

(a) [F7 in the case of any arrangement, that] if the individual was in the employment to which the arrangement or arrangements relates or relate on 5th April [F8 2006] the individual left the employment on that date, and

[F9 (aa) in the case of an arrangement within sub-paragraph (3)(a), that the valuation assumptions apply (see section 277),]

(b) [F10 in the case of any other arrangement, that] if the individual had not reached the lowest age at which a lump sum may be paid under a pension scheme within paragraph 1(1)(a) to a person in good health without giving the Board of Inland Revenue grounds for withdrawing the approval of the pension [F11 scheme] that fact would not give the Board such grounds.

(5) Whether an arrangement relating to an individual relates to an employment is to be determined in accordance with paragraph 9(6).

Textual Amendments

F3 Words in Sch. 36 para. 26(2) repealed (6.4.2006) by Finance Act 2005 (c. 7), Sch. 10 paras. 52(7)(a), 64(1), Sch. 11 Pt. 4

F4 Words in Sch. 36 para. 26(2)(a) substituted (6.4.2006) by Finance Act 2005 (c. 7), Sch. 10 paras. 52(7)(b), 64(1)

F5 Words in Sch. 36 para. 26(3) inserted (6.4.2006) by Finance Act 2005 (c. 7), Sch. 10 paras. 52(8), 64(1)

F6 Word in Sch. 36 para. 26(3)(a) substituted (retrospective to 6.4.2006) by Finance Act 2006 (c. 25), s. 161(2), Sch. 23 para. 45

F7 Words in Sch. 36 para. 26(4)(a) inserted (6.4.2006) by Finance Act 2005 (c. 7), Sch. 10 paras. 52(9)(a), 64(1)

F8 Word in Sch. 36 para. 26(4)(a) substituted (6.4.2006) by Finance Act 2005 (c. 7), Sch. 10 paras. 52(9)(a), 64(1)

F9 Sch. 36 para. 26(4)(aa) inserted (6.4.2006) by Finance Act 2005 (c. 7), Sch. 10 paras. 52(9)(b), 64(1)

F10 Words in Sch. 36 para. 26(4)(b) inserted (6.4.2006) by Finance Act 2005 (c. 7), Sch. 10 paras. 52(9)(c), 64(1)

F11 Word in Sch. 36 para. 26(4)(b) substituted (6.4.2006) by Finance Act 2005 (c. 7), Sch. 10 paras. 52(9)(c), 64(1)

[F12 27 U.K. If (and for so long as) paragraph 12 (enhanced protection) applies in relation to the individual, that paragraph has effect as if, for paragraph (i) of sub-paragraph (3B) there were substituted—

“(i) paragraph 2 of Schedule 29 to FA 2004 (pension commencement lump sum: definition of “permitted maximum”) has effect as if, for sub-paragraphs (b) and (c), there were substituted—

“(b) an amount equal to—

(i) the maximum amount of a pension commencement lump sum that could have been paid to the individual on 5 April 2023 under the arrangement pursuant to which the individual becomes entitled to the relevant pension mentioned in paragraph 1(1)(aa), less

(ii) the aggregate of the amounts of any pension commencement lump sums to which the member has previously become entitled under that arrangement after that date.””]

Textual Amendments

F12 Sch. 36 para. 27 substituted (for the tax year 2024-25 and subsequent tax years) by Finance Act 2024 (c. 3), Sch. 9 paras. 82, 124 (with Sch. 9 paras. 125-132A) (as amended by S.I. 2024/356, regs. 1, 4)

28 (1) If paragraph 12 (enhanced protection) does not apply in relation to the individual, F13 ... Schedule 29 applies in relation to the individual with the following modifications. U.K.

(2) If the value of the individual’s relevant uncrystallised lump sum rights on 5th April 2006 (calculated in accordance with paragraphs 25 and 26) was nil, the permitted maximum under paragraph 2 [F14 of Schedule 29] is nil.

[F15 (3) Otherwise, for paragraph 2 of Schedule 29 substitute—

“2 (1) In paragraph 1 “the permitted maximum”, in relation to a lump sum, means an amount equal to—

where—

• A is the value of the individual’s relevant uncrystallised lump sum rights on 5 April 2006 (calculated in accordance with paragraphs 25 and 26), as adjusted under sub-paragraph (2);

• B is the aggregate of the amounts of each pension commencement lump sum to which the individual has previously become entitled, as adjusted under sub-paragraph (3) (or, if the individual has not previously become entitled to a pension commencement lump sum, is nil).

(2) The adjustment referred to in the definition of A is the multiplication of the value of the individual’s relevant uncrystallised lump sum rights on 5th April 2006 by 1.2 (being £1,800,000 divided by £1,500,000).

(3) The adjustment of the amount of a pension commencement lump sum to which the individual has previously become entitled referred to in the definition of B is the multiplication of the amount by—

where C is—

(a)

if the individual became entitled to the lump sum before 6th April 2012, the standard lifetime allowance at that time;

(b)

otherwise, £1,800,000.”]

Textual Amendments

F13 Words in Sch. 36 para. 28(1) omitted (for the tax year 2024-25 and subsequent tax years) by virtue of Finance Act 2024 (c. 3), Sch. 9 paras. 83(2), 124 (with Sch. 9 paras. 125-132A) (as amended by S.I. 2024/356, regs. 1, 4)

F14 Words in Sch. 36 para. 28(2) inserted (for the tax year 2024-25 and subsequent tax years) by Finance Act 2024 (c. 3), Sch. 9 paras. 83(3), 124 (with Sch. 9 paras. 125-132A) (as amended by S.I. 2024/356, regs. 1, 4)

F15 Sch. 36 para. 28(3) substituted (for the tax year 2024-25 and subsequent tax years) by Finance Act 2024 (c. 3), Sch. 9 paras. 83(4), 124 (with Sch. 9 paras. 125-132A) (as amended by S.I. 2024/356, regs. 1, 4)

[F16 29 (1) If (and for so long as) paragraph 12 (enhanced protection) applies in relation to the individual, paragraphs 2A to 2D of Schedule 29 (meaning of “the applicable amount” in relation to a relevant pension) apply with the following modifications. U.K.

(2) Paragraph 2A of that Schedule (meaning of “the applicable amount” where the relevant pension is income withdrawal) applies as if, for sub-paragraphs (2) to (4), there were substituted—

“(2) The applicable amount is—

where—

• A is the value of the individual’s relevant uncrystallised lump sum rights on 5 April 2006, calculated in accordance with paragraphs 25 and 26 of Schedule 36;

• B is the value of the individual’s uncrystallised pension rights on 5 April 2006, calculated in accordance with paragraphs 8 and 9 of that Schedule;

• C is the pension commencement lump sum paid;

• D is—

  (a)

  the aggregate of the sums, and the market value of the assets, designated as available for the payment of drawdown pension on that occasion, less

  (b)

  so much (if any) of that amount as represents rights which are attributable to a disqualifying pension credit.”

(3) Paragraph 2B of that Schedule (meaning of “the applicable amount” where the relevant pension is a lifetime annuity) applies as if, for sub-paragraph (2) there were substituted—

“(2) The applicable amount is (subject to sub-paragraph (4))—

where—

• A is the value of the individual’s relevant uncrystallised lump sum rights on 5 April 2006, calculated in accordance with paragraphs 25 and 26 of Schedule 36 to FA 2004;

• B is the value of the individual’s uncrystallised pension rights on 5 April 2006, calculated in accordance with paragraphs 8 and 9 of that Schedule;

• C is the pension commencement lump sum paid;

• D is the annuity purchase price;

• E is—

  (a)

  if the annuity is purchased (in whole or in part) by the application of sums or assets representing the whole or part of the member’s drawdown pension fund or flexi-access drawdown fund, the aggregate of the amount of those sums and the market value of those assets;

  (b)

  otherwise, so much (if any) of the aggregate of the lump sum and the annuity purchase price as represents the rights which are attributable to a disqualifying pension credit.”

(4) Paragraph 2C of that Schedule (meaning of “the applicable amount” where the relevant pension is a defined benefits arrangement or a collective money purchase arrangement) applies as if—

(a) for sub-paragraph (2) there were substituted—

“(2) The applicable amount is (subject to sub-paragraph (3))—

where—

• A is the value of the individual’s relevant uncrystallised lump sum rights on 5 April 2006, calculated in accordance with paragraphs 25 and 26 of Schedule 36;

• B is the value of the individual’s uncrystallised pension rights on 5 April 2006, calculated in accordance with paragraphs 8 and 9 of that Schedule;

• C is the pension commencement lump sum paid;

• D is an amount equal to the value of the pension rights crystallised by reason of the individual becoming entitled to the pension (see sub-paragraph (4)).”;

(b) after sub-paragraph (3) there were inserted—

“(4) The Commissioners for His Majesty’s Revenue and Customs may by regulations make provision about how the value of the pension rights crystallised by reason of the individual becoming entitled to the pension is to be determined for the purposes of sub-paragraph (2).”

(5) Paragraph 2D of that Schedule (meaning of “the applicable amount” where the relevant pension is a money purchase arrangement) applies as if, for sub-paragraph (2), there were substituted—

“(2) The applicable amount is—

where—

• A is the value of the individual’s relevant uncrystallised lump sum rights on 5 April 2006, calculated in accordance with paragraphs 25 and 26 of Schedule 36;

• B is the value of the individual’s uncrystallised pension rights on 5 April 2006, calculated in accordance with paragraphs 8 and 9 of that Schedule;

• C is the pension commencement lump sum paid;

• D is the scheme pension purchase price.”]

Textual Amendments

F16 Sch. 36 para. 29 substituted (for the tax year 2024-25 and subsequent tax years) by Finance Act 2024 (c. 3), Sch. 9 paras. 84, 124 (with Sch. 9 paras. 125-132A) (as amended by S.I. 2024/356, regs. 1, 4)

F17 29A U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F17 Sch. 36 para. 29A inserted and then immediately omitted (6.4.2024 for the tax year 2024-25 and subsequent tax years) by virtue of Finance Act 2024 (c. 3), Sch. 9 paras. 85, 124 (with Sch. 9 paras. 125-132A) (as amended by S.I. 2024/356, regs. 1, 4) and The Pensions (Abolition of Lifetime Allowance Charge etc) Regulations 2024 (S.I. 2024/356), regs. 1, 3(14)

F18 30 U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F18 Sch. 36 para. 30 omitted (for the tax year 2024-25 and subsequent tax years) by virtue of Finance Act 2024 (c. 3), Sch. 9 paras. 86, 124 (with Sch. 9 paras. 125-132A) (as amended by S.I. 2024/356, regs. 1, 4)