Finance Act 1989

Part I U.K. Amendments of Taxes Act

Preliminary U.K.

1 U.K. The Taxes Act 1988 shall be amended as mentioned in the followingprovisions of this Part of this Schedule.

Amendments U.K.

F1 2 U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F1 Sch. 6 para. 2 repealed (1.5.1995 with effect in accordance with Sch. 8 para. 57 of the amending Act) by 1995 c. 4, s. 162, Sch. 29 Pt. VIII(5), note 2

3 (1) Section 590 (conditions for approval of schemes) shall be amended asfollows. U.K.

(2) In subsection (3)(d) (condition to be satisfied as to lump sum) the words “(disregarding any excess of that remuneration over the permittedmaximum)” shall be omitted.

(3) In subsection (3) for the words from “In paragraph (d) above” to theend there shall be substituted—

“(e) that, in the case of any employee who is a member of the scheme by virtueof two or more relevant associated employments, the amount payable by way ofpension in respect of service in any one of them may not, when aggregated withany amount payable by way of pension in respect of service in the other orothers, exceed the relevant amount;

(f) that, in the case of any employee who is a member of the scheme by virtueof two or more relevant associated employments, the amount payable by way ofcommuted pension in respect of service in any one of them may not, whenaggregated with any amount payable by way of commuted pension in respect ofservice in the other or others, exceed the relevant amount;

(g) that, in the case of any employee in relation to whom the scheme isconnected with another scheme which is (or other schemes each of which is) anapproved scheme, the amount payable by way of pension under the scheme maynot, when aggregated with any amount payable by way of pension under the otherscheme or schemes, exceed the relevant amount;

(h) that, in the case of any employee in relation to whom the scheme isconnected with another scheme which is (or other schemes each of which is) anapproved scheme, the amount payable by way of commuted pension may not, whenaggregated with any amount payable by way of commuted pension under the otherscheme or schemes, exceed the relevant amount.”

(4) For subsection (7) there shall be substituted—

“(7) Subsections (8) to (10) below apply where the Board are consideringwhether a retirement benefits scheme satisfies or continues to satisfy theprescribed conditions.

(8) For the purpose of determining whether the scheme, so far as it relatesto a particular class or description of employees, satisfies or continues tosatisfy the prescribed conditions, that scheme shall be considered inconjunction with—

(a) any other retirement benefits scheme (or schemes) which relates (orrelate) to employees of that class or description and which is (or are)approved for the purposes of this Chapter,

(b) any other retirement benefits scheme (or schemes) which relates (orrelate) to employees of that class or description and which is (or are) at thesame time before the Board in order for them to decide whether to giveapproval for the purposes of this Chapter,

(c) any section 608 scheme or schemes relating to employees of that class ordescription, and

(d) any relevant statutory scheme or schemes relating to employees of thatclass or description.

(9) If those conditions are satisfied in the case of both or all of thoseschemes taken together, they shall be taken to be satisfied in the case of thescheme mentioned in subsection (7) above (as well as the other or others).

(10) If those conditions are not satisfied in the case of both or all of thoseschemes taken together, they shall not be taken to be satisfied in the caseof the scheme mentioned in subsection (7) above.

(11) The reference in subsection (8)(c) above to a section 608 scheme is areference to a fund to which section 608 applies.”

4 U.K. The following sections shall be inserted after section 590—

“590A Section 590: supplementary provisions.

(1) For the purposes of section 590(3)(e) and (f) two or more employments arerelevant associated employments if they are employments in the case ofwhich—

(a) there is a period during which the employee has held both or all of them,

(b) the period counts under the scheme in the case of both or all of them asa period in respect of which benefits are payable, and

(c) the period is one during which both or all of the employers in questionare associated.

(2) For the purposes of section 590(3)(g) and (h) the scheme is connected withanother scheme in relation to an employee if—

(a) there is a period during which he has been the employee of two persons whoare associated employers,

(b) the period counts under both schemes as a period in respect of whichbenefits are payable, and

(c) the period counts under one scheme by virtue of service with one employerand under the other scheme by virtue of service with the other employer.

(3) For the purposes of subsections (1) and (2) above, employers areassociated if (directly or indirectly) one is controlled by the other or ifboth are controlled by a third person.

(4) In subsection (3) above the reference to control, in relation to a bodycorporate, shall be construed—

(a) where the body corporate is a close company, in accordance with section416, and

(b) where it is not, in accordance with section 840.

590B Section 590: further supplementary provisions.

(1) For the purposes of section 590(3)(e) the relevant amount, in relation toan employee, shall be found by applying the following formula—

(2) For the purposes of section 590(3)(f) the relevant amount, in relation toan employee, shall be found by applying the following formula—

(3) For the purposes of section 590(3)(g) the relevant amount, in relation toan employee, shall be found by applying the following formula—

(4) For the purposes of section 590(3)(h) the relevant amount, in relation toan employee, shall be found by applying the following formula—

(5) For the purposes of this section A is the aggregate number of yearsservice (expressing parts of a year as a fraction), subject to a maximum of40, which, in the case of the employee, count for the purposes of the schemeat the time the benefits in respect of service in the employment becomepayable.

(6) But where the same year (or part of a year) counts for the purposes of thescheme by virtue of more than one of the relevant associated employments itshall be counted only once in calculating the aggregate number of yearsservice for the purposes of subsection (5) above.

(7) For the purposes of this section B is the aggregate number of yearsservice (expressing parts of a year as a fraction), subject to a maximum of40, which, in the case of the employee, count for the purposes of any of thefollowing—

(a) the scheme, and

(b) the other scheme or schemes with which the scheme is connected in relationto him,

at the time the benefits become payable.

(8) But where the same year (or part of a year) counts for the purposes ofmore than one scheme it shall be counted only once in calculating theaggregate number of years service for the purpose of subsection (7) above.

(9) For the purposes of this section C is the permitted maximum in relationto the year of assessment in which the benefits in question become payable,that is, the figure found for that year by virtue of subsections (10) and (11)below.

(10) For the years 1988-89 and 1989-90 the figure is £60,000.

(11) For any subsequent year of assessment the figure is the figure found forthat year, for the purposes of section 590C, by virtue of section 590C(4) and(5).

590C Earnings cap.

(1) In arriving at an employee’s final remuneration for the purposes ofsection 590(3)(a) or (d), any excess of what would be his final remuneration(apart from this section) over the permitted maximum for the year ofassessment in which his participation in the scheme ceases shall bedisregarded.

(2) In subsection (1) above “the permitted maximum”, in relation to a year of assessment,means the figure found for that year by virtue of subsections (3) and (4)below.

(3) For the years 1988-89 and 1989-90 the figure is £60,000.

(4) For any subsequent year of assessment the figure is also £60,000,subject to subsection (5) below.

(5) If the retail prices index for the month of December preceding a year ofassessment falling within subsection (4) above is higher than it was for theprevious December, the figure for that year shall be an amount arrived atby—

(a) increasing the figure for the previous year of assessment by the samepercentage as the percentage increase in the retail prices index, and

(b) if the result is not a multiple of £600, rounding it up to thenearest amount which is such a multiple.

(6) The Treasury shall in the year of assessment 1989-90, and in eachsubsequent year of assessment, make an order specifying the figure which isby virtue of this section the figure for the following year of assessment.”

5 (1) Section 592 (exempt approved schemes) shall be amended as follows. U.K.

(2) In subsection (8) there shall be inserted at the beginning the words “Subject to subsection (8A) below,”.

(3) After subsection (8) there shall be inserted—

“(8A) Where an employee’s remuneration for a year of assessment includesremuneration in respect of more than one employment, the amount allowed to bededucted by virtue of subsection (7) above in respect of contributions paidby the employee in that year by virtue of any employment (whether under asingle scheme or under two or more schemes) shall not exceed 15 per cent, orsuch higher percentage as the Board may in a particular case prescribe, of hisremuneration for the year in respect of that employment.”

(4) After subsection (8A) there shall be inserted—

“(8B) In arriving at an employee’s remuneration for a year of assessment for thepurposes of subsection (8) or (8A) above, any excess of what would be hisremuneration (apart from this subsection) over the permitted maximum for thatyear shall be disregarded.

(8C) In subsection (8B) above “permitted maximum”, in relation to a year of assessment,means the figure found for that year by virtue of subsections (8D) and (8E)below.

(8D) For the year 1989-90 the figure is £60,000.

(8E) For any subsequent year of assessment the figure is the figure found forthat year, for the purposes of section 590C, by virtue of section 590C(4) and(5).”

6 (1) Section 594 (exempt statutory schemes) shall be amended as follows. U.K.

(2) In subsection (1) the word “relevant” shall be inserted before the words “statutoryscheme”.

(3) In subsection (2) there shall be inserted at the beginning the words “Subject to subsection (3) below,”.

(4) After subsection (2) there shall be inserted—

“(3) Where a person’s remuneration for a year of assessment includesremuneration in respect of more than one office or employment, the amountallowed to be deducted by virtue of subsection (1) above in respect ofcontributions paid by the person in that year by virtue of any office oremployment (whether under a single scheme or under two or more schemes) shallnot exceed 15 per cent, or such higher percentage as the Board may in aparticular case prescribe, of his remuneration for the year in respect of thatoffice or employment.”

(5) After subsection (3) there shall be inserted—

“(4) In arriving at a person’s remuneration for a year of assessment for thepurposes of subsection (2) or (3) above, any excess of what would be hisremuneration (apart from this subsection) over the permitted maximum for thatyear shall be disregarded.

(5) In subsection (4) above “permitted maximum”, in relation to a year of assessment,means the figure found for that year by virtue of subsections (6) and (7)below.

(6) For the year 1989-90 the figure is £60,000.

(7) For any subsequent year of assessment the figure is the figure found forthat year, for the purposes of section 590C, by virtue of section 590C(4) and(5).”

7 U.K. Section 595(2) and (3) (charge to tax in certain cases) shall be omitted.

8 (1) Section 596 (exceptions from section 595) shall be amended as follows. U.K.

(2) In subsection (1)—

(a) for the words “Neither subsection (1) nor subsection (2) of section 595shall” there shall be substituted the words “Section 595(1) shallnot”; and

(b) in paragraph (b) the word “relevant” shall be inserted before thewords “statutory scheme”.

(3) In subsection (2) for the words “Neither subsection (1) nor subsection(2) of section 595 shall” there shall be substituted the words “Section595(1) shall not”.

(4) In subsection (3)(a) the words “either” and “or subsection (2)” shall be omitted.

9 U.K. The following section shall be inserted after section 596—

“596A Charge to tax: benefits under non-approved schemes.

(1) Where in any year of assessment a person receives a benefit provided undera retirement benefits scheme which is not of a description mentioned insection 596(1) (a), (b) or (c), tax shall be charged in accordance with theprovisions of this section.

(2) Where the benefit is received by an individual, he shall be charged to taxunder Schedule E for that year.

(3) Where the benefit is received by a person other than an individual, theadministrator of the scheme shall be charged to tax under Case VI of ScheduleD for that year.

(4) The amount to be charged to tax is—

(a) in the case of a cash benefit, the amount received, and

(b) in the case of a benefit in kind, an amount equal to whatever is the cashequivalent of the benefit.

(5) In the case of the charge under Case VI of Schedule D, the rate of tax is40 per cent. or such other rate (whether higher or lower) as may for the timebeing be specified by the Treasury by order.

(6) Tax shall not be charged under this section in the case of a benefit whichis chargeable to tax under Schedule E by virtue of section 19(1)1.

(7) But where the amount chargeable to tax by virtue of section 19(1)1 is lessthan the amount which would be chargeable to tax under this section—

(a) subsection (6) above shall not apply, and

(b) the amount chargeable to tax under this section shall be reduced by theamount chargeable to tax by virtue of section 19(1)1.

(8) Tax shall not be charged under this section to the extent that the benefitreceived is attributable to the payment of a sum—

(a) which is deemed to be the income of a person by virtue of section 595(1),and

(b) in respect of which that person has been assessed to tax.

(9) For the purpose of subsection (8) above the provision of a benefit shallbe presumed not to be attributable to the payment of such a sum as ismentioned in that subsection unless the contrary is shown.

596B Section 596A: supplementary provisions.

(1) For the purposes of section 596A the cash equivalent of a benefit in kindis—

(a) in the case of a benefit other than living accommodation, the amount whichwould be the cash equivalent of the benefit under Chapter II of Part V if itwere chargeable under the appropriate provision of that Chapter (treating anysum made good by the recipient as made good by the employee), and

(b) in the case of living accommodation, an amount equal to the value of theaccommodation to the recipient determined in accordance with the followingprovisions of this section less so much of any sum made good by him to thoseat whose cost the accommodation is provided as is properly attributable to theprovision of the accommodation.

(2) Where the cost of providing the accommodation does not exceed£75,000, the value of the accommodation to the recipient in any periodis the rent which would have been payable for the period if the premises hadbeen let to him at an annual rent equal to their annual value as ascertainedunder section 837.

(3) But for a period in which those at whose cost the accommodation isprovided pay rent at an annual rate greater than the annual value as soascertained, the value of the accommodation to the recipient is an amountequal to the rent payable by them for the period.

(4) Where the cost of providing the accommodation does exceed £75,000,the value of the accommodation to the recipient shall be taken to be theaggregate of the value of the accommodation to him determined in accordancewith subsections (2) and (3) above and the additional value of theaccommodation to him determined in accordance with subsections (5) and (6)below.

(5) The additional value of the accommodation to the recipient in any periodis the rent which would have been payable for that period if the premises hadbeen let to him at an annual rent equal to the appropriate percentage of theamount by which the cost of providing the accommodation exceeds £75,000.

(6) Where throughout the period of six years ending with the date when therecipient first occupied the property any estate or interest in the propertywas held by a relevant person (whether or not it was the same estate, interestor person throughout), the additional value shall be calculated as if insubsection (7) below—

(a) the amount referred to in paragraph (a) were the market value of thatproperty as at that date, and

(b) the amount referred to in paragraph (b) did not include expenditure onimprovements made before that date.

(7) For the purposes of this section, the cost of providing any livingaccommodation shall be taken to be the aggregate of—

(a) the amount of any expenditure incurred in acquiring the estate or interestin the property held by a relevant person, and

(b) the amount of any expenditure incurred by a relevant person before theyear of assessment in question on improvements to the property.

(8) The aggregate amount mentioned in subsection (7) above shall be reducedby the amount of any payment made by the recipient to a relevant person, sofar as that amount represents a reimbursement of any such expenditure as ismentioned in paragraph (a) or (b) of that subsection or representsconsideration for the grant to the recipient of a tenancy of the property.

(9) For the purposes of this section, any of the following persons is arelevant person—

(a) the person providing the accommodation;

(b) any person, other than the recipient, who is connected with a personfalling within paragraph (a) above.

(10) In this section—

• “the appropriate percentage” means the rate applicable forthe purposes of section 160 as at the beginning of the year of assessment inquestion;

• “market value”, in relation to any property, means the pricewhich that property might reasonably be expected to fetch on a sale in theopen market with vacant possession, no reduction being made, in estimating themarket value, on account of any option in respect of the property held by therecipient, or a person connected with him, or by any of the persons mentionedin subsection (9) above;

• “property”, in relation to any living accommodation, meansthe property consisting of that living accommodation;

• “tenancy” includes a sub-tenancy;

and section 839 shall apply for the purposes of this section.”

10 U.K. In section 598(1)(b) (charge to tax: repayment of employee’scontributions) the word “relevant” shall be inserted before the words “statutoryscheme”.

11 (1) Section 599 (charge to tax: commutation of entire pension in specialcircumstances) shall be amended as follows. U.K.

(2) In subsection (2)(b) the word “relevant” shall be inserted before thewords “statutory scheme”.

(3) After subsection (9) there shall be inserted—

“(10) In subsection (1)(a) above “the permitted maximum” means, as regards a charge to taxarising under this section in a particular year of assessment, the figurefound for that year by virtue of subsections (11) and (12) below.

(11) For the years 1988-89 and l989-90 the figure is £60,000.

(12) For any subsequent year of assessment the figure is the figure found forthat year, for the purposes of section 590C, by virtue of section 590C(4) and(5).”

12 (1) The following section shall be inserted after section 599— U.K.

“599A Charge to tax: payments out of surplus funds.

(1) This subsection applies to any payment which is made to or for the benefitof an employee or to his personal representatives out of funds which are orhave been held for the purposes of—

(a) a scheme which is or has at any time been an exempt approved scheme, or

(b) a relevant statutory scheme established under a public general Act,

and which is made in pursuance of a duty to return surplus funds.

(2) On the making of a payment to which subsection (1) above applies, theadministrator of the scheme shall be charged to income tax under Case VI ofSchedule D at the relevant rate on such amount as, after deduction of tax atthat rate, would equal the amount of the payment.

(3) Subject to subsection (4) below, the relevant rate shall be 35 per cent.

(4) The Treasury may by order from time to time increase or decrease therelevant rate.

(5) Where a payment made to or for the benefit of an employee is one to whichsubsection (1) above applies, it shall be treated in computing the totalincome of the employee for the year in which it is made as income for thatyear which is—

(a) received by him after deduction of income tax at the basic rate from acorresponding gross amount, and

(b) chargeable to income tax under Case VI of Schedule D.

(6) But, subject to subsection (7) below, no assessment to income tax shallbe made on, and no repayment of income tax shall be made to, the employee.

(7) Subsection (6) above shall not prevent an assessment in respect of incometax at a rate other than the basic rate.

(8) Subsection (5) above applies whether or not the employee is the recipientof the payment.

(9) Any payment chargeable to tax under this section shall not be chargeableto tax under section 598, 599 or 600 or under the Regulations mentioned inparagraph 8 of Schedule 3 to the Finance Act 1971.

(10) In this section—

• “employee”, in relation to a relevant statutory scheme,includes any officer;

• references to any payment include references to any transfer of assets orother transfer of money’s worth.”

13 (1) Section 600 (charge to tax: unauthorised payments to or for employees)shall be amended as follows. U.K.

(2) In subsection (1) the words “or have been” and “or has at any time been” shall be omitted.

(3) In subsection (2) for paragraphs (a) and (b) there shall be substitutedthe words “is not expressly authorised by the rules of the scheme or byvirtue of paragraph 33 of Schedule 6 to the Finance Act 1989.”

14 U.K. In section 605 (information) the word “relevant” shall be inserted before the words “statutory scheme” in subsections (2), (3)(a) and (b)(i) and(4).

15 U.K. The following section shall be inserted after section 611—

“611A Definition of relevant statutory scheme.

(1) In this Chapter any reference to a relevant statutory scheme is areference to a statutory scheme—

(a) established before 14th March 1989, or

(b) established on or after that date and entered in the register maintainedby the Board for the purposes of this section.

(2) The Board shall maintain a register for the purposes of this section andshall enter in it the relevant particulars of any statutory scheme establishedon or after 14th March 1989 which is reported to the Board by the authorityresponsible for establishing it as a scheme the provisions of which correspondwith those of an approved scheme.

(3) The reference in subsection (2) above to the relevant particulars, inrelation to a scheme, is a reference to—

(a) the identity of the scheme,

(b) the date on which it was established,

(c) the authority responsible for establishing it, and

(d) the date on which that authority reported the scheme to the Board.

(4) Where the Board enter the relevant particulars of a scheme in the registermaintained by them for the purposes of this section, they shall inform theauthority responsible for establishing the scheme of the date of the entry.”

16 U.K. In section 828(4) (orders) after “377(8)” there shall be inserted “590C(6)”.

17 U.K. Paragraph 8 of Schedule 23 (benefits under scheme for additional voluntarycontributions causing benefits under main scheme to abate if aggregatebenefits exceed limits) shall be omitted.

Effect of amendments U.K.

18 (1) Paragraphs 2, 6(2), 8(2)(b), 10, 11(2), 14 and 15 above shall be deemedto have come into force on 14th March 1989. U.K.

(2) Paragraphs 3(2) and (3) and 4 above shall have effect in relation to ascheme not approved by the Board before the day on which this Act is passed;but if the scheme came into existence before 14th March 1989 those provisionsshall not have effect as regards an employee who became a member of the schemebefore 1st June 1989.

(3) Paragraph 3(4) above shall have effect where a determination is made onor after the day on which this Act is passed.

(4) Paragraphs 5 and 6(3), (4) and (5) above shall have effect for the year1989-90 and subsequent years of assessment, but paragraphs 5(4) and 6(5) aboveshall not have effect as regards a person’s remuneration in respect of anoffice or employment in such circumstances as the Board may by regulationsprescribe for the purposes of this sub-paragraph.

(5) Paragraphs 7 and 8(2)(a) and (3) above shall have effect for the year1988-89 and subsequent years of assessment.

(6) Paragraph 8(4) above shall not have effect where a sum has been deemed tobe income of a person by virtue of section 595(2) before 6th April 1988.

(7) Paragraph 9 above shall have effect in relation to payments made andbenefits provided on or after the day on which this Act is passed.

(8) Paragraph 11(3) above shall have effect where the charge to tax undersection 599 arises on or after 14th March 1989, but not where the scheme cameinto existence before that date and the employee became a member of it before1st June 1989.

(9) Paragraphs 12 and 13 above shall have effect in relation to payments madeon or after the day on which this Act is passed.

(10) Paragraph 17 above shall have effect in relation to benefits provided onor after the day on which this Act is passed.

Modifications etc. (not altering text)

C1 For regulations see Part III Vol. 5 (under “Retirement benefit schemes: tax relief on contributions”)