Finance Act 2011

Section 67

SCHEDULE 18 U.K. Lifetime allowance charge

Part 1 U.K. Amendments

1 U.K. Part 4 of FA 2004 (pension schemes etc) is amended as follows.

2 (1) Section 218 (individual's lifetime allowance and standard lifetime allowance) is amended as follows. U.K.

(2) For subsections (2) and (3) substitute—

“(2) The standard lifetime allowance for the tax year 2012-13 and, subject to subsection (3), subsequent tax years is £1,500,000.

(3) The Treasury may by order provide that the standard lifetime allowance for any tax year subsequent to the tax year 2012-13 is such amount, not being less than the standard lifetime allowance for the immediately preceding tax year, as is specified in the order.”

(3) After subsection (5) insert—

“(5A) Where the operation of a lifetime allowance enhancement factor is provided for by any of sections 220, 222, 223 and 224 and the time mentioned in the definition of SLA in the section concerned was before 6 April 2012, subsection (4) has effect as if the amount to be multiplied by LAEF were £1,800,000 (the standard lifetime allowance for the tax year 2011-12) if that is greater than SLA.

(5B) Where the operation of a lifetime allowance enhancement factor is provided for by paragraph 7 of Schedule 36, subsection (4) has effect as if SLA were £1,800,000 (the standard lifetime allowance for the tax year 2011-12) if that is greater than SLA.

(5C) Where benefit crystallisation event 7 occurs on or after 6 April 2012 by reason of the payment of a relevant lump sum death benefit in respect of the death of the individual before that date, the standard lifetime allowance at the time of the benefit crystallisation event is £1,800,000 (the standard lifetime allowance for the tax year 2011-12).”

3 U.K. Schedule 29 (authorised lump sums) is amended as follows.

4 (1) Paragraph 7 (trivial commutation lump sum) is amended as follows. U.K.

F1 (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) After that sub-paragraph insert—

“(4A) The Treasury may by order substitute for the amount for the time being specified in sub-paragraph (4) such larger amount as is specified in the order.”

Textual Amendments

F1 Sch. 18 para. 4(2) omitted (with effect in accordance with s. 42(8) of the amending Act) by virtue of Finance Act 2014 (c. 26), s. 42(3)

5 (1) Paragraph 10 (winding-up lump sum) is amended as follows. U.K.

(2) In sub-paragraph (2), for “1% of the standard lifetime allowance when the lump sum is paid,” substitute “ £18,000, ”.

(3) After that sub-paragraph insert—

“(2A) The Treasury may by order substitute for the amount for the time being specified in sub-paragraph (2) such larger amount as is specified in the order.”

6 (1) Paragraph 20 (trivial commutation lump sum death benefit) is amended as follows. U.K.

F2 (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) After that sub-paragraph insert—

“(3) The Treasury may by order substitute for the amount for the time being specified in sub-paragraph (2) such larger amount as is specified in the order.”

Textual Amendments

F2 Sch. 18 para. 6(2) omitted (with effect in accordance with Sch. 1 para. 74(6) of the amending Act) by virtue of Taxation of Pensions Act 2014 (c. 30), Sch. 1 para. 74(5)

F3 7 U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F3 Sch. 18 para. 7 omitted (17.12.2014) by virtue of Taxation of Pensions Act 2014 (c. 30), Sch. 1 para. 75(2)

8 U.K. Schedule 36 (transitional provision) is amended as follows.

9 U.K. In paragraph 16(3), for “standard lifetime allowance when the first relevant event occurs.” substitute “ underpinned lifetime allowance when the first relevant event occurs; and “the underpinned lifetime allowance” is the greater of the current standard lifetime allowance and £1,800,000 (the standard lifetime allowance for the tax year 2011-12). ”

10 (1) Paragraph 28(3) is amended as follows. U.K.

(2) In the sub-paragraphs (6A) and (7) treated as substituted—

(a) in the formula, for “CSLA” substitute “ ULA ”, and

(b) for the definition of CSLA substitute— “ ULA is the underpinned lifetime allowance, and ”.

(3) After the sub-paragraph (7) treated as substituted insert—

“(7A) The underpinned lifetime allowance” is the greater of the current standard lifetime allowance and £1,800,000 (the standard lifetime allowance for the tax year 2011-12).”

11 (1) Paragraph 34(2) is amended as follows. U.K.

(2) In the sub-paragraph (5) treated as substituted, for “ CSLA ” substitute “ULA”.

(3) In the sub-paragraph (7) treated as substituted, for the definition of CSLA substitute— “ ULA is the underpinned lifetime allowance, ”.

(4) After the sub-paragraph (7A) treated as substituted insert—

“(7AZA) The underpinned lifetime allowance” is the greater of the current standard lifetime allowance and £1,800,000 (the standard lifetime allowance for the tax year 2011-12).”

12 U.K. In the Registered Pension Schemes (Standard Lifetime and Annual Allowances) Order 2010 (S.I. 2010/922), omit article 2.

Part 2 U.K. Commencement and transitional provision

13 U.K. The amendments made by Part 1 have effect for the tax year 2012-13 and subsequent tax years.

14 (1) This paragraph applies on and after 6 April 2012 in the case of an individual— U.K.

(a) who has one or more arrangements under a registered pension scheme on that date,

(b) in relation to whom paragraph 7 of Schedule 36 to FA 2004 (primary protection) does not [F4 apply on that date], and

(c) in relation to whom paragraph 12 of that Schedule (enhanced protection) does not apply on that date,

if notice of intention to rely on it is given to an officer of Revenue and Customs.

[F5 (1A) This paragraph also applies on or after 6 April 2012 in the case of an individual—

(a) who, on that date—

(i) has one or more arrangements under a relieved non-UK pension scheme of which the individual is a relieved member, and

(ii) is not a member of a registered pension scheme,

(b) in relation to whom paragraph 7 of Schedule 36 to FA 2004 (primary protection) does not [F6 apply on that date], and

(c) in relation to whom paragraph 12 of that Schedule (enhanced protection) does not apply on that date,

if notice of intention to rely on it is given to an officer of Revenue and Customs.]

F7 (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F8 (3) Chapter 15A of Part 9 of ITEPA 2003 (pension income: lump sums under registered pension schemes) has effect in relation to the individual as if—

(a) the amount specified in section 637P of that Act (individual’s lump sum allowance) were £450,000, and

(b) the amount specified in section 637R of that Act (individual’s lump sum and death benefit allowance) were—

(i) if one or more lump sum and death benefit allowance enhancement factors operate in relation to the individual for the purposes of paragraph 20H of Schedule 36 to FA 2004, the individual’s enhanced lump sum and death benefit allowance (as determined under that paragraph of that Schedule), and

(ii) otherwise, £1,800,000.

(3A) For the purposes of paragraph 20H of Schedule 36 to FA 2004, the individual’s “protected lump sum and death benefit allowance” is £1,800,000.]

(4) But this paragraph ceases to apply if [F9 the notice under sub-paragraph (1) or (as the case may be) sub-paragraph (1A) is given on or after 15 March 2023 and,] on or after 6 April 2012—

(a) there is benefit accrual in relation to the individual under an arrangement under a registered pension scheme,

(b) there is an impermissible transfer into any arrangement under a registered pension scheme relating to the individual,

(c) a transfer of sums or assets held for the purposes of, or representing accrued rights under, any such arrangement is made that is not a permitted transfer, or

(d) an arrangement relating to the individual is made under a registered pension scheme otherwise than in permitted circumstances.

[F10 (4A) Subject to sub-paragraphs (4B) to (4E), sub-paragraph (4) applies in relation to an individual who is a relieved member of a relieved non-UK pension scheme as if the scheme were a registered pension scheme; and the other sub-paragraphs of this paragraph apply accordingly.

(4B) In relation to an arrangement under a relieved non-UK pension scheme, in sub-paragraph (4) the reference to 6 April 2012 is to be read as a reference to 6 April 2013.

(4C) Sub-paragraphs (4D) and (4E) apply (instead of sub-paragraph (5)) for the purposes of sub-paragraph (4)(a) in determining if there is benefit accrual in relation to an individual under an arrangement under a relieved non-UK pension scheme of which the individual is a relieved member.

(4D) There is benefit accrual in relation to the individual under the arrangement if there is a pension input amount under sections 230 to 237 of FA 2004 (as applied by Schedule 34 to that Act) greater than nil in respect of the arrangement for a tax year; and, in such a case, the benefit accrual is treated as occurring at the end of the tax year.

(4E) There is also benefit accrual in relation to the individual under the arrangement if—

(a) in a tax year there occurs a benefit crystallisation event in relation to the individual (whether in relation to the arrangement or to any other arrangement under any pension scheme or otherwise), and

(b) had the tax year ended immediately before the benefit crystallisation event, there would have been a pension input amount under sections 230 to 237 of FA 2004 greater than nil in respect of the arrangement for the tax year,

and, in such a case, the benefit accrual is treated as occurring immediately before the benefit crystallisation event.]

(5) For the purposes of sub-paragraph (4)(a) there is benefit accrual in relation to the individual under an arrangement—

(a) in the case of a money purchase arrangement that is not a cash balance arrangement, if a relevant contribution is paid under the arrangement on or after 6 April 2012,

(b) in the case of a cash balance arrangement or a defined benefits arrangement, if there is an increase in the value of the individual's rights under the arrangement at any time on or after that date (but subject to sub-paragraph (12)), and

(c) in the case of a hybrid arrangement—

(i) where the benefits that may be provided to or in respect of the individual under the arrangement include money purchase benefits other than cash balance benefits, if a relevant contribution is paid under the arrangement on or after 6 April 2012, and

(ii) in any case, if there is an increase in the value of the individual's rights under the arrangement at any time on or after that date (but subject to sub-paragraph (12)).

(6) For the purposes of sub-paragraphs (5)(b) and (c)(ii) and (12) whether there is an increase in the value of the individual's rights under the arrangement (and its amount if there is) is to be determined—

(a) in the case of a cash balance arrangement (or a hybrid arrangement under which cash balance benefits may be provided to or in respect of the individual under the arrangement), by reference to whether there is an increase in the amount that would, on the valuation assumptions, be available for the provision of benefits to or in respect of the member (and, if there is, the amount of the increase), and

(b) in the case of a defined benefits arrangement (or a hybrid arrangement under which defined benefits may be provided to or in respect of the individual under the arrangement), by reference to whether there is an increase in the benefits amount.

(7) For the purposes of sub-paragraph (6)(b) “the benefits amount” is—

where—

LS is F11 ... the lump sum to which the individual would, on the valuation assumptions, be entitled under the arrangement (otherwise than by commutation of pension);

P is the annual rate of the pension which would, on the valuation assumptions, be payable to the individual under the arrangement;

RVF is the relevant valuation factor.

(8) Paragraph 17A of Schedule 36 to FA 2004 (impermissible transfers) applies for the purposes of sub-paragraph (4)(b) but as if the references to a relevant existing arrangement were to the arrangement and the reference in sub-paragraph (2) to 5 April 2006 were to 5 April 2012.

(9) Sub-paragraphs (7) to (8B) of paragraph 12 of Schedule 36 to FA 2004 (when there is a permitted transfer) apply for the purposes of sub-paragraph (4)(c); and where there is a permitted transfer—

(a) if it is a permitted transfer by virtue of sub-paragraph (8)(a) of paragraph 12, this paragraph applies in relation to the arrangement to which the transfer is made,

(b) if it is a permitted transfer by virtue of sub-paragraph (8)(b) of that paragraph, this paragraph applies in relation to the arrangement to which the transfer is made as if it were the same as that from which it is made, and

(c) if it is a permitted transfer by virtue of sub-paragraph (8)(c) of that paragraph, this paragraph applies in relation to the arrangement to which the transfer is made as if it were the same as that from which it is made and (if the employment is transferred) as if the employment with the transferee were the employment with the transferor.

(10) Sub-paragraphs (2A) to (2C) of paragraph 12 of Schedule 36 to FA 2004 (“permitted circumstances”) apply for the purposes of sub-paragraph (4)(d).

(11) Paragraph 14 of Schedule 36 to FA 2004 (when a relevant contribution is paid under an arrangement) applies for the purposes of sub-paragraph (5)(a)[F12 and (c)(i)].

(12) Increases in the value of the individual's rights under an arrangement are to be ignored for the purposes of sub-paragraph (5)(b) or (c)(ii) if in no tax year do they exceed the relevant percentage.

[F13 (13) The relevant percentage, in relation to a tax year, means—

(a) where the arrangement (or a predecessor arrangement) includes provision for the value of the rights of the individual to increase during the tax year at an annual rate specified in the rules of the pension scheme (or a predecessor registered pension scheme) on 9 December 2010—

(i) the percentage specified (or, where more than one arrangement includes such provision, the higher or highest of the percentages specified), plus

(ii) the relevant statutory increase percentage;

(b) where the arrangement (or a predecessor arrangement) includes provision for the value of the rights of the individual to increase during the tax year at an annual rate specified by reference to the retail prices index in the rules of the pension scheme (or a predecessor registered pension scheme) on 6 April 2012 which does not exceed an increase in the retail prices index—

(i) the percentage specified (or, where more than one arrangement includes such provision, the higher or highest of the percentages specified), plus

(ii) the relevant statutory increase percentage; or

(c) otherwise—

(i) an increase in the consumer prices index, or

(ii) if higher, the relevant statutory increase percentage.

Where both paragraphs (a) and (b) would otherwise apply giving different percentages, the paragraph giving the higher percentage applies.

(14) In sub-paragraph (13)—

• “predecessor arrangement”, in relation to an arrangement, means another arrangement (under the same or another registered pension scheme) from which some or all of the sums or assets held for the purposes of the arrangement directly or indirectly derive;

• “predecessor registered pension scheme”, in relation to a pension scheme, means another registered pension scheme from which some or all of the sums or assets held for the purposes of the arrangement under the pension scheme directly or indirectly derive;

• “an increase in the retail prices index” means the percentage by which the retail prices index for a month specified in the rules of the pension scheme (or predecessor pension scheme) is higher than it was for the same month in the year before (or nil per cent if it is not higher);

• “an increase in the consumer prices index” means the percentage by which the consumer prices index for the month of September in the previous tax year is higher than it was for the same month in the year before (or nil per cent if it is not higher).

(14A) In sub-paragraph (13) “the relevant statutory increase percentage”, in relation to a tax year, means the percentage increase in the value of the individual’s rights under the arrangement during the tax year so far as it is attributable solely to one or more of the following—

(a) an increase in accordance with section 15 of the Pension Schemes Act 1993 or section 11 of the Pension Schemes (Northern Ireland) Act 1993 (increase of guaranteed minimum where commencement of guaranteed minimum pension postponed);

(b) a revaluation in accordance with section 16 of the Pension Schemes Act 1993 or section 12 of the Pension Schemes (Northern Ireland) Act 1993 (early leavers: revaluation of earnings factors);

(c) a revaluation in accordance with Chapter 2 of Part 4 of the Pension Schemes Act 1993 or the Pension Schemes (Northern Ireland) Act 1993 (early leavers: revaluation of accrued benefits);

(d) a revaluation in accordance with Chapter 3 of Part 4 of the Pension Schemes Act 1993 or the Pension Schemes (Northern Ireland) Act 1993 (early leavers: protection of increases in guaranteed minimum pensions);

(e) the application of section 67 of the Equality Act 2010 (sex equality rule for occupational pension schemes).

(14B) Sub-paragraph (14C) applies in relation to a tax year if—

(a) the arrangement is a defined benefits arrangement which is under an annuity contract treated as a registered pension scheme under section 153(8) of FA 2004,

(b) the contract provides for the value of the rights of the individual to be increased during the tax year at an annual rate specified in the contract, and

(c) the contract limits the annual rate to the percentage increase in the retail prices index over a 12 month period specified in the contract.

(14C) Sub-paragraph (13)(c)(i) applies as if it referred instead to the annual rate of the increase in the value of the rights during the tax year.

(14D) For the purposes of sub-paragraph (14B)(c) the 12 month period must end during the 12 month period preceding the month in which the increase in the value of the rights occurs.]

F14 (15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F14 (16) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F14 (17) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(18) Expressions used in this paragraph and Part 4 of FA 2004 have the same meaning in this paragraph as in that Part.

[F15 (19) In particular, references to a relieved non-UK pension scheme or a relieved member of such a scheme are to be read in accordance with paragraphs 13(3) and (4) and 18 of Schedule 34 to FA 2004 (application of lifetime allowance charge provisions to members of overseas pension schemes).]

Textual Amendments

F4 Words in Sch. 18 para. 14(1)(b) substituted (6.4.2024 for the tax year 2024-25 and subsequent tax years) by Finance Act 2024 (c. 3), Sch. 9 paras. 90(2), 124 (with Sch. 9 paras. 125-132)

F5 Sch. 18 para. 14(1A) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Registered Pension Schemes and Relieved Non-UK Pension Schemes (Lifetime Allowance Transitional Protection) (Amendment) Regulations 2013 (S.I. 2013/1740), regs. 1(1), 2(2)

F6 Words in Sch. 18 para. 14(1A)(b) substituted (6.4.2024 for the tax year 2024-25 and subsequent tax years) by Finance Act 2024 (c. 3), Sch. 9 paras. 90(3), 124 (with Sch. 9 paras. 125-132)

F7 Sch. 18 para. 14(2) omitted (17.7.2013) by virtue of Finance Act 2013 (c. 29), s. 47(2)(a)

F8 Sch. 18 para. 14(3)(3A) substituted for Sch. 18 para. 14(3) (18.11.2024 for the tax year 2024-25 and subsequent tax years) by The Pensions (Abolition of Lifetime Allowance Charge etc) (No. 2) Regulations 2024 (S.I. 2024/1012), regs. 1(2)(3), 13

F9 Words in Sch. 18 para. 14(4) inserted (for the tax year 2023-24 and subsequent tax years) by Finance (No. 2) Act 2023 (c. 30), s. 23(5)(8)

F10 Sch. 18 para. 14(4A)-(4E) inserted (with effect in accordance with reg. 1(3) of the amending S.I.) by The Registered Pension Schemes and Relieved Non-UK Pension Schemes (Lifetime Allowance Transitional Protection) (Amendment) Regulations 2013 (S.I. 2013/1740), regs. 1(1), 2(3)

F11 Words in Sch. 18 para. 14(7) omitted (6.4.2012 retrospective) by virtue of Finance Act 2013 (c. 29), s. 47(2)(b)(4)

F12 Words in Sch. 18 para. 14(11) inserted (6.4.2012 retrospective) by Finance Act 2013 (c. 29), s. 47(2)(c)(4)

F13 Sch. 18 para. 14(13)-(14D) substituted for Sch. 18 para. 14(13)(14) (with effect in accordance with reg. 1(2) of the amending S.I.) by The Registered Pension Schemes and Relieved Non-UK Pension Schemes (Lifetime Allowance Transitional Protection) (Amendment) Regulations 2013 (S.I. 2013/1740), regs. 1(1), 2(4)

F14 Sch. 18 para. 14(15)-(17) omitted (17.7.2013) by virtue of Finance Act 2013 (c. 29), s. 47(2)(a)

F15 Sch. 18 para. 14(19) inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Registered Pension Schemes and Relieved Non-UK Pension Schemes (Lifetime Allowance Transitional Protection) (Amendment) Regulations 2013 (S.I. 2013/1740), regs. 1(1), 2(5)

[F16 15 (1) The Commissioners for Her Majesty's Revenue and Customs may by regulations amend paragraph 14.

(2) Regulations under this paragraph may (for example) add to the cases in which paragraph 14 is to apply or is to cease to apply.

(3) Regulations under this paragraph may include provision having effect in relation to a time before the regulations are made; but—

(a) the time must be no earlier than 6 April 2012, and

(b) the provision must not increase any person's liability to tax.

(4) In relation to regulations under this paragraph made during 2013, sub-paragraph (3) has effect with the omission of paragraph (b) so long as the time in question is no earlier than 6 April 2013.

Textual Amendments

F16 Sch. 18 paras. 15-17 inserted (17.7.2013) by Finance Act 2013 (c. 29), s. 47(3)

16 (1) The Commissioners for Her Majesty's Revenue and Customs may by regulations make provision specifying how any notice required to be given to an officer of Revenue and Customs under paragraph 14 is to be given.

(2) In sub-paragraph (1) the reference to paragraph 14 is to that paragraph as amended from time to time by regulations under paragraph 15.

Textual Amendments

F16 Sch. 18 paras. 15-17 inserted (17.7.2013) by Finance Act 2013 (c. 29), s. 47(3)

17 (1) Regulations under paragraph 15 or 16 may include supplementary or incidental provision.

(2) The powers to make regulations under paragraphs 15 and 16 are exercisable by statutory instrument.

(3) A statutory instrument containing regulations under paragraph 15 or 16 is subject to annulment in pursuance of a resolution of the House of Commons.]

Textual Amendments

F16 Sch. 18 paras. 15-17 inserted (17.7.2013) by Finance Act 2013 (c. 29), s. 47(3)