Finance Act 1999

Section 79.

SCHEDULE 10 U.K. Sharing of pensions etc. on divorce or annulment

Modifications etc. (not altering text)

C1 Sch. 10 applied (with modifications) (10.5.2000) by S.I. 2000/1085, regs. 3-8

Sch. 10 applied (S.) (28.1.2002) by S.I. 1995/365, Pt. W para. W14(2) (as inserted (28.1.2002) by S.S.I. 2001/465, reg. 3, Sch. 1)

Definition of “pension business” U.K.

1 (1) Section 431B of the Taxes Act 1988 (meaning of “pension business”) shall be amended as follows. U.K.

(2) In subsection (2)—

(a) in paragraph (e) (contracts in substitution of contracts under paragraph (d)), after “(d) above” there shall be inserted “ or this paragraph ”; and

(b) after that paragraph there shall be inserted the following paragraph—

“(ea) any contract which is entered into, for purposes connected with giving effect to any pension sharing order or provision made in relation to a contract falling within paragraph (d) or (e) above or this paragraph and by means of which relevant benefits (see subsections (3) and (4) below), and no other benefits, are secured;”.

(3) After that subsection there shall be inserted the following subsection—

“(2A) For the purposes of subsection (2)(d) above the members of and contributors to a scheme or fund shall be deemed to include any person who by virtue of any pension sharing order or provision (within the meaning of Part XIV) has become entitled to any credit as against the persons having the management of the scheme or fund.”

(4) In subsection (3) (meaning of “relevant benefits”)—

(a) for “subsection (2)(d) and (e)” there shall be substituted “ subsection (2)(d) to (ea) ”; and

(b) after the words “subsection (2)(e)”, wherever they occur, there shall be inserted “ or (ea) ”.

Approval of retirement benefit schemes U.K.

2 (1) In subsection (2) of section 590 of the Taxes Act 1988 (conditions for approval of scheme), for paragraph (a) there shall be substituted— U.K.

“(a) that the scheme is bona fide established for the sole purpose (subject to any enactment or Northern Ireland legislation requiring or allowing provision for the value of any rights to be transferred between schemes or between members of the same scheme) of providing relevant benefits in respect of service as an employee;”.

(2) After that paragraph there shall be inserted the following paragraph—

“(aa) that those benefits do not include any benefits payable to a person other than—

(i) the employee or a scheme member’s ex-spouse,

(ii) a widow, widower, child, or dependant of the employee or of a scheme member’s ex-spouse, or

(iii) the personal representatives of the employee or of a scheme member’s ex-spouse;”.

(3) In subsection (3) of that section (conditions for automatic approval), for paragraph (c) there shall be substituted the following paragraphs—

“(ba) that any benefit for an ex-spouse, or for the widow or widower of an ex-spouse, is a benefit in relation to which the scheme satisfies the conditions set out in subsection (3A) below;

(bb) that the scheme does not allow any rights debited to a scheme member as a consequence of a pension sharing order or provision to be replaced with any rights which that scheme member would not have been able to acquire (in addition to the debited rights) had the order or provision not been made;

(c) that no benefits are payable under the scheme other than those mentioned in paragraphs (a), (b) and (ba) above;”.

(4) In paragraph (d) of that subsection (restriction on surrender, commutation and assignment)—

(a) for “except” there shall be substituted “except—

(i) for the purpose of giving effect to a pension sharing order or provision, or

(ii) in so far as the commutation of a benefit for an ex-spouse is allowed by virtue of subsection (3A) below, or

(iii)”;

and

(b) for “his pension” there shall be substituted “ a pension provided for him ”.

(5) After that paragraph there shall be inserted the following paragraph—

“(da) that, in a case in which—

(i) a lump sum may be obtained by the commutation of a part of a pension provided for an employee, and

(ii) the amount of that pension is affected by the making of a pension sharing order or provision,

the lump sum does not exceed the sum produced by multiplying by 2.25 the amount which (after effect has been given to the pension sharing order or provision) is the amount of that pension for the first year in which it is payable;”.

(6) After subsection (3) of that section there shall be inserted the following subsection—

“(3A) The conditions mentioned in subsection (3)(ba) above are—

(a) that any benefit for an ex-spouse takes the form of a pension (with or without an entitlement to commute a part of that pension);

(b) that any benefit for an ex-spouse is a pension payable only on the attainment by the ex-spouse of a specified age of not less than 60 and not more than 75;

(c) that any entitlement to commute a part of the pension is exercisable only on its becoming payable;

(d) that any benefit for the widow or widower of an ex-spouse is confined to a non-commutable pension payable on the death of the ex-spouse at a time when the ex-spouse is already entitled to receive a pension under the scheme;

(e) that any pension provided for the widow or widower of an ex-spouse is of an amount not exceeding two-thirds of the pension payable to the ex-spouse;

(f) that, in a case in which a lump sum may be obtained by the commutation of a part of a pension provided for an ex-spouse, the lump sum does not exceed the sum produced by multiplying the amount of the pension for the first year in which it is payable by 2.25.”

(7) In subsection (4) of that section (conditions that are referred to as “the prescribed conditions”), for “subsections (2) and (3)” there shall be substituted “ subsections (2) to (3A) ”.

(8) After subsection (4A) of that section there shall be inserted the following subsections—

“(4B) For the purposes of this section a benefit provided under any scheme is provided for an ex-spouse or the widow or widower of an ex-spouse, and shall be treated as not provided for an employee or the widow or widower of an employee, to the extent (and to the extent only) that—

(a) it is provided for a person who is, or is the widow or widower of, either—

(i) an employee who is an ex-spouse; or

(ii) a scheme member’s ex-spouse;

and

(b) it is as an ex-spouse, or as the widow or widower of an ex-spouse, that that person is the person for whom the benefit is provided.

(4C) For the purposes of this section a benefit provided for any person under any scheme is provided for that person as an ex-spouse, or as the widow or widower of an ex-spouse, to the extent (and to the extent only) that—

(a) the benefit is provided in respect of rights of an ex-spouse that are or represent rights conferred on the ex-spouse as a consequence of a pension sharing order or provision; and

(b) the scheme makes provision for the benefit to be treated as provided separately from any benefits which are provided under the scheme for the same person as an employee or as the widow or widower of an employee.

(4D) In this section “scheme member”, in relation to a scheme, means—

(a) an employee; or

(b) a person entitled to any relevant benefits under the scheme as a consequence of a pension sharing order or provision.

(4E) The following rules shall apply in calculating for the purposes of subsection (3)(da) or (3A)(f) above the amount of a person’s pension for the first year in which it is payable—

(a) if the pension payable for the year changes, the initial pension payable shall be taken;

(b) it shall be assumed that that person will survive for the year; and

(c) the effect of commutation shall be ignored.

(4F) A pension provided for an ex-spouse who is an employee, or for the widow or widower of such an ex-spouse, shall be disregarded in any determination of whether the conditions set out in subsection (3)(e) to (h) above are satisfied or continue to be satisfied in the case of that employee.”

Discretionary approval of retirement benefit schemes U.K.

3 U.K. In section 591(2) of the Taxes Act 1988—

(a) in paragraph (b) (discretion to approve schemes providing benefits for widows on the death in service of an employee), after “widows” there shall be inserted “ and widowers ”; and

(b) after that paragraph there shall be inserted the following paragraph—

“(ba) which provides pensions for the widows and widowers of ex-spouses dying before the age at which their pensions become payable and for the children or dependants of ex-spouses; or”.

Non-approved retirement benefit schemes U.K.

4 U.K. In subsection (5) of section 595 of the Taxes Act 1988 (charge to tax in respect of certain sums paid by employer etc.), after “wife” there shall be inserted “ or husband, ” and after “widow” there shall be inserted “ or widower or ”.

5 U.K. In section 596 of the Taxes Act 1988, after subsection (3) (relief where a taxed contribution does not result in the payment of benefits) there shall be inserted the following subsection—

“(4) Relief shall not be given under subsection (3) above in respect of tax on any sum if—

(a) the reason for there having been no payment in respect of, or in substitution for, the benefits, or part of the benefits, in question, or

(b) the event by reason of which there will be no such payment,

is a reduction or cancellation, as a consequence of any pension sharing order or provision, of the employee’s rights in respect of the benefits.”

6 U.K. In section 596A(8)(c) (lump sums provided under non-approved schemes), after the word “employee,”, in the first place where it occurs, there shall be inserted “ an ex-spouse of the employee, ”.

Charge on pensions commuted in special circumstances U.K.

7 (1) In section 599 of the Taxes Act 1988 (charge to tax where pension commuted in special circumstances), the words “Subject to subsection (1A) below,” shall be inserted at the beginning of subsection (1); and the following subsections shall be inserted after that subsection— U.K.

“(1A) Subsection (1) above shall have effect in relation to the commutation of the whole or any part of a pension the amount of which has been affected by the making of any pension sharing order or provision as if paragraph (a) and the words after paragraph (b) were omitted.

(1B) Where—

(a) a scheme to which this section applies contains a rule allowing, in special circumstances, a payment in commutation of the entire pension provided under the scheme for an ex-spouse, and

(b) any pension is commuted, whether wholly or not, under the rule,

tax shall be charged on the amount by which the sum receivable exceeds the largest sum which would have been receivable in commutation of any part of the pension under any rule of the scheme authorising the commutation of a part (but not the whole) of the pension.

(1C) A pension provided for an ex-spouse shall be disregarded when applying subsection (1) above in relation to the commutation of any pension provided for an employee.

(1D) A pension provided for an employee shall be disregarded when applying subsection (1B) above in relation to the commutation of any pension provided for an ex-spouse.

(1E) Subsections (4B) and (4C) of section 590 apply for the purposes of subsections (1C) and (1D) above as they apply for the purposes of that section.”

(2) In subsection (6) of that section, after “subsection (1) above” there shall be inserted “ , or in applying subsection (1B) above ”.

Charge on unauthorised payments U.K.

8 (1) In subsection (1) of section 600 of the Taxes Act 1988 (charge on unauthorised payments to employees), after “an employee” there shall be inserted “ or an ex-spouse ”. U.K.

(2) In subsection (2) of that section (person charged), for the words from “the employee” to “shall” there shall be substituted “ the employee or, as the case may be, the ex-spouse shall (whether or not he is the recipient of the payment) ”.

Definition of “retirement benefits scheme” U.K.

9 (1) In subsections (3) and (4)(b) of section 611 of the Taxes Act 1988 (definition of “retirement benefits scheme”), for the words “employees” and “employee”, wherever occurring, there shall be substituted, respectively, the words “ scheme members ” and “ scheme member ”. U.K.

(2) After subsection (5) of that section there shall be inserted the following subsection—

“(6) In this section “scheme member”, in relation to a scheme means—

(a) an employee; or

(b) a person whose rights under the scheme derive from a pension sharing order or provision.”

Interpretation of Chapter I U.K.

10 (1) In subsection (1) of section 612 of the Taxes Act 1988 (interpretation of Chapter I of Part XIV), in the definition of “relevant benefits”, after the word “death”, in the first place where it occurs, there shall be inserted “ , or by virtue of a pension sharing order or provision ”. U.K.

(2) In subsection (2) of that section (references to the provision of relevant benefits to include the provision of benefits under contracts with third parties)—

(a) after “Chapter” there shall be inserted “ , in relation to a scheme, ”;

(b) for “of an employer” there shall be substituted “ or ex-spouses ”; and

(c) after “or the employee” there shall be inserted “ or ex-spouse ”.

(3) After that subsection there shall be inserted the following subsection—

“(2A) In subsection (2) above the reference to the employer is a reference to the person who is the employer in relation to the scheme.”

Overseas pensions U.K.

11 U.K. In section 615(6)(b) of the Taxes Act 1988 (funds annuities from which are paid without deduction of tax to non-UK residents), after “purpose” there shall be inserted “ (subject to any enactment or Northern Ireland legislation requiring or allowing provision for the value of any rights to be transferred between schemes or between members of the same scheme) ”.

Rules prohibiting surrender or assignment of annuities etc. U.K.

12 (1) In section 634(6) of the Taxes Act 1988 (restriction on assignment or surrender of annuities), for “except that” there shall be substituted “except that— U.K.

(a) an annuity may be assigned or surrendered for the purpose of giving effect to a pension sharing order or provision; and

(b)”.

(2) In section 634A(6) of that Act (restriction on assignment or surrender of right to income withdrawals), after “surrender” there shall be inserted “ , except for the purpose of giving effect to a pension sharing order or provision ”.

(3) In section 635(5) of that Act (restriction on assignment or surrender of right to payment of lump sum), after “surrender” there shall be inserted “ , except for the purpose of giving effect to a pension sharing order or provision ”.

Annuity payable on the death of a member U.K.

13 (1) In section 636 of the Taxes Act 1988 (annuity payable after death of member to spouse or dependants), after subsection (3) there shall be inserted the following subsection— U.K.

“(3A) The references in subsection (3) above—

(a) to the annual amount or highest annual amount of an annuity of which the member was in receipt before his death, and

(b) to the highest annual amount of an annuity that would have been payable if it had been purchased on the day before the member’s death,

shall each be construed in a case where payments of that annuity were or would have been affected by the making of any pension sharing order or provision as if the only payments of that annuity to be taken into account were those that have been or would have been so affected.”

(2) In subsection (10) of that section (restriction on assignment or surrender of annuities payable after death of member), for “except that” there shall be substituted “except that—

(a) an annuity may be assigned or surrendered for the purpose of giving effect to a pension sharing order or provision; and

(b)”.

Rule in section 636A prohibiting assignment or surrender U.K.

14 U.K. In section 636A(7) of the Taxes Act 1988 (restriction on assignment or surrender of right to income withdrawals after death of member), after “surrender” there shall be inserted “ , except for the purpose of giving effect to a pension sharing order or provision ”.

Meaning of “relevant earnings” U.K.

15 (1) In section 644 of the Taxes Act 1988 (which for the purposes of references to relevant earnings contains provisions in subsections (6A) to (6F) for excluding the income of controlling directors), after subsection (6E) there shall be inserted the following subsection— U.K.

“(6EA) Where—

(a) there is a time at which a person would be in receipt of any benefits under a scheme but for any debit to which any of his rights under that scheme became subject by virtue of any pension sharing order or provision, and

(b) the benefits he would be in receipt of are benefits payable in respect of past service with a company,

that person shall be deemed for the purposes of subsections (6A) to (6E) above to be in receipt at that time of benefits under that scheme and the benefits which he is deemed to be in receipt of shall be deemed to be benefits in respect of past service with that company.”

(2) In subsection (6F) of that section (construction of subsections (6A) to (6E))—

(a) in the words before paragraph (a), for “(6E)” there shall be substituted “ (6EA) ”;

(b) in paragraph (c) (benefits in respect of past service), after “the company” there shall be inserted “ but do not include references to benefits which (within the meaning of section 590) are provided for him as an ex-spouse ”; and

(c) in paragraph (d) (transfer payment in respect of past service), at the end there shall be inserted “ but do not include references to any transfer payment made for the purpose of giving effect to a pension sharing order or provision. ”

Purchased life annuities U.K.

16 U.K. In section 657(2) of the Taxes Act 1988 (annuities not treated as purchased life annuities within section 656), after paragraph (e) there shall be inserted “; or

(f) to any annuity purchased, for purposes connected with giving effect to any pension sharing order or provision, for consideration which derives from—

(i) a retirement benefits scheme (within the meaning of Chapter I of this Part) of a description mentioned in section 596(1);

(ii) sums satisfying the conditions for relief under section 619;

(iii) any such scheme or arrangements as are mentioned in paragraph (d) or (e) above; or

(iv) the surrender, in whole or in part, of an annuity falling within paragraph (da) above or this paragraph, or of a contract for such an annuity.”

Interpretation of Part XIV U.K.

17 U.K. In Chapter VI of Part XIV of the Taxes Act 1988 (interpretation of Part XIV), the following section shall be inserted after section 659C—

“659D Interpretation of provisions about pension sharing.

(1) In this Part “ex-spouse” means a party to a marriage that has been dissolved or annulled and, in relation to any person, means the other party to a marriage with that person that has been dissolved or annulled.

(2) References in this Part to a pension sharing order or provision are references to any such order or provision as is mentioned in section 24(1) of the Welfare Reform and Pensions Act 1999 (rights under pension sharing arrangements).”

Commencement etc. U.K.

18 (1) In this paragraph— U.K.

• “the first appointed day” means such day as the Treasury may by order appoint as the first appointed day for the purposes of this paragraph;

• “the second appointed day” means such day falling after the first appointed day as the Treasury may by order appoint as the second appointed day for the purposes of this paragraph.

(2) The power of the Treasury to appoint a day as the second appointed day for the purposes of this paragraph shall include power so to appoint different days for different purposes.

(3) Subject to sub-paragraph (4) below, paragraphs 2 and 3(b) above apply for the purposes of the grant or withdrawal at any time on or after the first appointed day of any approval of a retirement benefits scheme (whenever made or approved).

(4) Section 590(3)(bb) and (da) of the Taxes Act 1988 shall be disregarded for the purposes of determining whether any retirement benefits scheme approved before the first appointed day satisfies the prescribed conditions at any time before the second appointed day.

(5) Every retirement benefits scheme which—

(a) has, before the first appointed day, been approved by the Board for the purposes of Chapter I of Part XIV of the Taxes Act 1988, and

(b) by virtue of having been approved before that day continues to be so approved on or after the second appointed day,

shall have effect, so long as it continues to be approved on and after the second appointed day and notwithstanding anything in the rules of the scheme, as if (so far as it does not already do so) it contained provision satisfying the conditions set out in section 590(3)(bb) and (da) of the Taxes Act 1988.

(6) Paragraph 6 above applies to any lump sum provided on or after the second appointed day.

(7) Paragraph 8 above applies to any payment on or after the second appointed day.

(8) Subject to sub-paragraph (9) below, paragraphs 12 to 14 above apply for the purposes of—

(a) the grant at any time on or after the first appointed day of any approval of a personal pension scheme (whenever made);

(b) the withdrawal at any time on or after that day of approval of any personal pension scheme or personal pension arrangements (whenever approved).

(9) Section 636(3A) of the Taxes Act 1988 shall be disregarded for the purposes of determining whether any personal pension scheme approved before the first appointed day, or any of the arrangements made by an individual in accordance with such a scheme, satisfies the prescribed conditions at any time before the second appointed day.

(10) The Board may by regulations provide that, in such circumstances as may be prescribed by the regulations, this Schedule shall apply in the case of retirement benefits schemes approved before the first appointed day with such exceptions, exclusions and modifications as may be so prescribed.

(11) Regulations under sub-paragraph (10) above may include such incidental, supplemental, consequential and transitional provision as the Board think appropriate.

Subordinate Legislation Made

P1 Sch. 10 para. 18(1) power fully exercised: 10.5.2000 appointed as first appointed day by S.I. 2000/1093, art. 2(a); 1.12.2000 appointed as second appointed day by S.I. 2000/1093, art. 2(b)