Finance Act 2010

Section 23

SCHEDULE 2 U.K. Pensions: high income excess relief charge

Modifications etc. (not altering text)

C1 Sch. 2: power to repeal conferred (27.7.2010) by Finance (No. 2) Act 2010 (c. 31), s. 5(1)

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

2 After section 213 insert—

“High income excess relief charge U.K.

213A High income excess relief charge

213A (1) A charge to income tax, to be known as the high income excess relief charge, arises where—

(a) an individual who is a member of one or more registered pension schemes has a high income for a tax year, and

(b) there is a total pension savings amount in the case of the individual for the tax year.

(2) The person liable to the high income excess relief charge is the individual.

(3) The individual is liable to the high income excess relief charge whether or not—

(a) the individual, and

(b) the scheme administrator of the pension scheme or schemes concerned,

are UK resident, ordinarily UK resident or domiciled in the United Kingdom.

(4) The high income excess relief charge is a charge at the appropriate rate in respect of the total pension savings amount.

(5) The total pension savings amount is not to be treated as income for any purpose of the Tax Acts apart from this Part.

(6) In calculating the individual's liability to income tax for the tax year the amount of any income tax to which the individual is liable under this section is to be added at Step 7 of the calculation in section 23 of ITA 2007 (which applies as if this section were a provision listed in section 30 of that Act).

(7) The following sections make further provision about the high income excess relief charge—

(a) sections 213B to 213D (high income),

(b) section 213E (the appropriate rate),

(c) sections 213F to 213N (total pension savings amount),

(d) section 213O (anti-avoidance), and

(e) section 213P (power to amend).

213B High income

An individual has a high income for a tax year if—

(a) the individual's gross income for the tax year is £150,000 or more, and

(b) the individual's relevant income for the tax year is not less than £130,000.

213C Gross income

To find the individual's gross income for a tax year take the following steps—

• Step 1 Identify the individual's total income for the tax year.

• Step 2 Add the amount of any deductions made from any employment income of the individual for the tax year under Part 12 of ITEPA 2003 (payroll giving), under section 193(2) of this Act or under Chapter 2 of Part 5 of ITEPA 2003 (employee's expenses) in accordance with paragraph 51 of Schedule 36 to this Act.

• Step 3 Deduct the amount of any relief under the provisions listed in section 24 of ITA 2007, other than Chapter 3 of Part 8 of that Act (gifts of shares, securities or real property to charity) and sections 193(4) and 194(1) of this Act, to which the individual is entitled for the tax year.

• Step 4 Add so much of the amount that is the total pension savings amount in the case of the individual for the tax year as remains after deducting from it the amount of any relievable pension contributions paid by or on behalf of the individual during the tax year.

213D Relevant income

213D (1) To find the individual's relevant income for a tax year take the following steps—

• Step 1 Identify the individual's total income for the tax year.

• Step 2 Add the amount of any deductions made from any employment income of the individual for the tax year under Part 12 of ITEPA 2003 (payroll giving), under section 193(2) of this Act or under Chapter 2 of Part 5 of ITEPA 2003 (employee's expenses) in accordance with paragraph 51 of Schedule 36 to this Act.

• Step 3 Deduct the amount of any relief under the provisions listed in section 24 of ITA 2007, other than Chapter 3 of Part 8 of that Act (gifts of shares, securities or real property to charity) and sections 193(4) and 194(1) of this Act, to which the individual is entitled for the tax year.

• Step 4 Add any amount by which what would otherwise be general earnings or specific employment income of the individual for the tax year has been reduced by relevant salary sacrifice arrangements or relevant flexible remuneration arrangements.

The result is the individual's relevant income for the tax year.

(2) In subsection (1)—

• “relevant salary sacrifice arrangements” means arrangements under which the individual gives up the right to receive general earnings or specific employment income in return for the making of relevant pension provision and which are made on or after 22 April 2009 (whether before or after the employment in question began);

• “relevant flexible remuneration arrangements” means arrangements under which the individual and an employer of the individual agree that relevant pension provision is to be made rather than the individual receive some description of employment income and which are made on or after 22 April 2009 (whether before or after the employment in question began).

(3) In subsection (2) “relevant pension provision” means the payment of contributions (or additional contributions) to a pension scheme in respect of the individual or otherwise (by an employer of the individual or any other person) to secure an increase in the amount of benefits to which the individual or any person who is a dependant of, or is connected with, the individual is actually or prospectively entitled under a pension scheme.

(4) Section 993 of ITA 2007 (meaning of “connected” persons) applies for the purposes of subsection (3).

213E The appropriate rate

213E (1) “The appropriate rate”, in relation to the total pension savings amount in the case of the individual for a tax year, is—

(a) 0% in relation to so much (if any) of that amount as, when added to the individual's reduced net income for the tax year, does not exceed the basic rate limit,

(b) 20% in relation to so much (if any) of that amount as, when so added, exceeds the basic rate limit but does not exceed the higher rate limit, and

(c) 30% in relation to so much (if any) of that amount as, when so added, exceeds the higher rate limit.

(2) But where the individual's gross income for the tax year is less than £180,000, the percentages in subsection (1)(b) and (c) are each reduced (but to no less than 0%) by 1 percentage point for every £1,000 by which it is less than £180,000.

(3) 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.

(4) Where the basic rate limit or the higher rate limit for the tax year is (in accordance with section 192 of this Act and section 414 of ITA 2007) increased in the case of the individual, the references to the limit in subsection (1) are to the limit as so increased.

213F Total pension savings amount

213F (1) The total pension savings amount in the case of an individual for a tax year is arrived at by aggregating the pension savings amounts in respect of each arrangement relating to the individual under a registered pension scheme of which the individual is a member.

(2) The pension savings amount in respect of an arrangement—

(a) is the amount arrived at under section 213G if it is a money purchase arrangement other than a cash balance arrangement,

(b) is the amount arrived at under section 213H if it is a cash balance arrangement,

(c) is the amount arrived at under section 213J if it is a defined benefits arrangement, and

(d) is the amount arrived at under section 213N if it is a hybrid arrangement.

(3) Where the pension savings amount in respect of an arrangement would otherwise be a negative amount it is to be taken to be nil.

(4) Where—

(a) the total pension input amount in the case of the individual under section 229 for the tax year, exceeds

(b) the amount of the annual allowance for the tax year,

the total pension savings amount in the case of the individual for the tax year is reduced by the amount of the excess.

(5) The Treasury may by regulations make provision—

(a) for an arrangement relating to the individual to be left out of account in arriving at the total pension savings amount in the case of the individual for a tax year if the individual meets the condition in subsection (6) throughout the tax year and such conditions as are prescribed by the regulations are met, and

(b) for modifying the operation of any of the provisions relating to the high income excess relief charge in relation to an arrangement relating to the individual for a tax year if the individual meets the condition in subsection (6) for only part of the tax year and such conditions as are prescribed by the regulations are met.

(6) The condition in this subsection, in relation to the individual and an arrangement under a pension scheme, is that the individual is a deferred member of the pension scheme (or would be if it were the only arrangement under the pension scheme relating to the individual).

213G Money purchase arrangements other than cash balance arrangements

213G (1) The pension savings amount in respect of a money purchase arrangement other than a cash balance arrangement is the total of—

(a) any relievable pension contributions paid by or on behalf of the individual under the arrangement, and

(b) contributions paid in respect of the individual under the arrangement by an employer of the individual,

during the tax year.

(2) The references to contributions in subsection (1)(a) and (b) do not include minimum payments under—

(a) section 8 of the Pension Schemes Act 1993, or

(b) section 4 of the Pension Schemes (Northern Ireland) Act 1993,

or any amount recovered under regulations made under subsection (3) of either of those sections.

(3) When at any time contributions paid under a pension scheme by an employer otherwise than in respect of any individual become held for the purposes of the provision under an arrangement under the pension scheme of benefits to or in respect of an individual, they are to be treated as being contributions paid at that time in respect of the individual under the arrangement.

(4) If during the tax year the individual becomes entitled to a serious ill-health lump sum under the arrangement or dies, the pension savings amount in the case of the individual in respect of the arrangement is nil.

213H Cash balance arrangements

213H (1) The pension savings amount in respect of a cash balance arrangement is the appropriate increase.

(2) The appropriate increase is—

where—

ACR is the amount of the closing rights (see subsection (3)), adjusted in accordance with section 213I,

CARARF is the factor which is the appropriate age-related factor (see section 213L) in relation to the closing rights,

UOR is the amount of the opening rights (see subsection (4)), uprated in accordance with section 213M, and

OARARF is the factor which is the appropriate age-related factor (see section 213L) in relation to the opening rights.

(3) The amount of the closing rights is the amount which would, on the relevant assumptions, be available for the provision of benefits to or in respect of the individual under the arrangement if the individual became entitled to the benefits at the end of the tax year.

(4) The amount of the opening rights is the amount which would, on the relevant assumptions, be available for the provision of benefits to or in respect of the individual under the arrangement if the individual became entitled to the benefits at the end of the preceding tax year.

(5) If, during the tax year, minimum payments are made under—

(a) section 8 of the Pension Schemes Act 1993, or

(b) section 4 of the Pension Schemes (Northern Ireland) Act 1993,

in relation to the individual in connection with a cash balance arrangement, the amount is to be subtracted from what would otherwise be the pension savings amount in the case of the individual in respect of the arrangement.

(6) If during the tax year the individual becomes entitled to a serious ill-health lump sum under the arrangement or dies, the pension savings amount in the case of the individual in respect of the arrangement is nil.

(7) In this section and section 213J “the relevant assumptions” means—

(a) the valuation assumptions (see section 277) as modified by regulations made by the Treasury, and

(b) such other assumptions as the Treasury may by regulations prescribe.

213I Adjustment of closing rights

213I (1) This section applies for adjusting ACR under section 213H.

(2) If, during the tax year, the rights of the individual under the arrangement have been reduced by having become subject to a pension debit, the amount of the reduction is to be added to ACR.

(3) If, during the tax year, the rights of the individual under the arrangement have been increased by the individual having become entitled to a pension credit deriving from the same or another registered pension scheme, the amount of the increase is to be subtracted from ACR.

(4) If, during the tax year, the rights of the individual under the arrangement have been reduced by reason of a transfer relating to the individual of any sums or assets held for the purposes of, or representing accrued rights under, the arrangement so as to become held for the purposes of, or to represent rights under, any other pension scheme that is—

(a) a registered pension scheme, or

(b) a qualifying recognised overseas pension scheme,

the amount of the reduction is to be added to ACR.

(5) If, during the tax year, the rights of the individual under the arrangement have been increased by reason of a transfer relating to the individual of any sums or assets held for the purposes of, or representing accrued rights under, any pension scheme so as to become held for the purposes of, or to represent rights under, the arrangement, the amount of the increase is to be subtracted from ACR.

(6) If, during the tax year, the rights of the individual under the arrangement have been reduced by any surrender made, or similar action taken, pursuant to an option available to the individual under the arrangement, the amount of the reduction is to be added to ACR.

(7) If, during the tax year—

(a) benefit crystallisation event 1, 2, 3, or 4 occurs in relation to the individual and the arrangement,

(b) benefit crystallisation event 6 so occurs by virtue of the individual becoming entitled to a pension commencement lump sum or a lifetime allowance excess lump sum, or

(c) there is an allocation of rights of the individual under the arrangement (not falling within paragraph (a)),

the amount of the reduction in the amount of the rights available for the provision of benefits to or in respect of the individual occurring by reason of the event or allocation is to be added to ACR.

213J Defined benefits arrangements

213J (1) The pension savings amount in respect of a defined benefits arrangement is the aggregate of—

(a) the appropriate pension increase (see subsection (2)), and

(b) the appropriate lump sum increase (see subsection (5)).

(2) The appropriate pension increase is—

where—

ACP is the amount of the closing pension (see subsection (3)), adjusted in accordance with section 213K,

CAPARF is the factor which is the appropriate age-related factor (see section 213L) in relation to the closing pension,

UOP is the amount of the opening pension (see subsection (4)), uprated in accordance with section 213M, and

OAPARF is the factor which is the appropriate age-related factor (see section 213L) in relation to the opening pension.

(3) The amount of the closing pension is the annual rate of the pension to which the individual would, on the relevant assumptions, be entitled under the arrangement if the individual became entitled to it at the end of the tax year.

(4) The amount of the opening pension is the annual rate of the pension to which the individual would, on the relevant assumptions, be entitled under the arrangement if the individual became entitled to it at the end of the preceding tax year.

(5) The appropriate lump sum increase is—

where—

ACLS is the amount of the closing lump sum (see subsection (6)), adjusted in accordance with section 213K,

CALSARF is the factor which is the appropriate age-related factor (see section 213L) in relation to the closing lump sum,

UOLS is the amount of the opening lump sum (see subsection (7)), uprated in accordance with section 213M, and

OALSARF is the factor which is the appropriate age-related factor (see section 213L) in relation to the opening lump sum.

(6) The amount of the closing lump sum is the amount of the lump sum to which the individual would, on the relevant assumptions, be entitled under the arrangement if the individual became entitled to it at the end of the tax year.

(7) The amount of the opening lump sum is the amount of the lump sum to which the individual would, on the relevant assumptions, be entitled under the arrangement if the individual became entitled to it at the end of the preceding tax year.

(8) If, during the tax year, minimum payments are made under—

(a) section 8 of the Pension Schemes Act 1993, or

(b) section 4 of the Pension Schemes (Northern Ireland) Act 1993,

in relation to the individual in connection with a defined benefits arrangement, the amount is to be subtracted from what would otherwise be the pension savings amount in the case of the individual in respect of the arrangement.

(9) If during the tax year the individual becomes entitled to a serious ill-health lump sum under the arrangement or dies, the pension savings amount in the case of the individual in respect of the arrangement is nil.

213K Adjustment of closing pension and lump sum

213K (1) This section applies for adjusting ACP and ACLS under section 213J.

(2) If, during the tax year, the annual rate of the pension, or the amount of the lump sum, to which the individual would be entitled under the arrangement has been reduced by having become subject to a pension debit, the amount of the reduction is to be added to ACP or ACLS.

(3) If, during the tax year, the annual rate of the pension, or the amount of the lump sum, to which the individual would be entitled under the arrangement has been increased by the individual having become entitled to a pension credit deriving from the same or another registered pension scheme, the amount of the increase is to be subtracted from ACP or ACLS.

(4) If, during the tax year, the annual rate of the pension, or the amount of the lump sum, to which the individual would be entitled under the arrangement has been reduced by reason of a transfer relating to the individual of any sums or assets held for the purposes of, or representing accrued rights under, the arrangement so as to become held for the purposes of, or to represent rights under, any other pension scheme that is—

(a) a registered pension scheme, or

(b) a qualifying recognised overseas pension scheme,

the amount of the reduction is to be added to ACP or ACLS.

(5) If, during the tax year, the annual rate of the pension, or the amount of the lump sum, to which the individual would be entitled under the arrangement has been increased by reason of a transfer relating to the individual of any sums or assets held for the purposes of, or representing accrued rights under, any pension scheme so as to become held for the purposes of, or to represent rights under, the arrangement, the amount of the increase is to be subtracted from ACP or ACLS.

(6) If, during the tax year, the annual rate of the pension, or the amount of the lump sum, to which the individual would be entitled under the arrangement has been reduced by any commutation, allocation or surrender made, or similar action taken, pursuant to an option available to the individual under the arrangement, the amount of the reduction is to be added to ACP or ACLS.

(7) If, during the tax year—

(a) benefit crystallisation event 2 or 3 occurs in relation to the individual and the arrangement, or

(b) benefit crystallisation event 6 occurs in relation to the individual and the arrangement by virtue of the individual becoming entitled to a pension commencement lump sum or a lifetime allowance excess lump sum,

the annual rate of the pension, or the amount of the lump sum, to which the individual became entitled (otherwise than by commutation of lump sum or of pension) is to be added to ACP or ACLS.

213L Age-related factors

213L (1) The Treasury must make regulations about age-related factors.

(2) Different provision may be made in relation to rights age-related factors and lump sum age-related factors, on the one hand, and pension age-related factors on the other.

(3) For the purposes of sections 213H and 213J the “appropriate” age-related factor is the age-related factor which applies in the case of the individual, and the amount of the rights or lump sum, or rate of the pension, in accordance with the regulations.

(4) Regulations under subsection (1) must make provision for the age-related factor or factors applying in the case of the individual to be arrived at by reference to—

(a) the age of the individual, and

(b) the relevant normal pension age,

at the relevant time.

(5) The relevant time, in relation to factors for a tax year, is the end of the tax year unless the case is one in which there is a change in the relevant normal pension age during the tax year.

(6) In that case, the relevant time, in relation to the relevant normal pension age and the opening rights, opening pension or opening lump sum for the tax year, is the end of the previous tax year.

(7) Regulations under subsection (1) may make provision for the age-related factor or factors applying in the case of an individual and an arrangement to vary according to the nature and extent of the benefits which may be provided to or in respect of the individual under the arrangement.

(8) Before making the first regulations under subsection (1) the Treasury must seek advice from the Government Actuary or the Deputy Government Actuary.

(9) Before making any other regulations under subsection (1) the Treasury must carry out a review of the provision made by the regulations for the time being in force under this section; and when conducting such a review the Treasury must seek advice from the Government Actuary or the Deputy Government Actuary.

(10) The Treasury must carry out a review of the provision made by the regulations for the time being in force under subsection (1)—

(a) no later than the end of the period of 5 years beginning with the day on which the first regulations are made under this section, and

(b) no later than the end of the period of 5 years beginning with the last review of the provision made by the regulations for the time being in force under this section.

(11) In this section “the relevant normal pension age”, in relation to an individual and an arrangement, means the age at which the individual would be unconditionally entitled to benefits under the arrangement without any reduction on account of age (assuming that the individual were a deferred member of the pension scheme under which it is an arrangement and it were the only arrangement under the pension scheme relating to the individual).

(12) But the Treasury may by regulations make provision for the relevant normal pension age to be the age specified in, or determined in accordance with, the regulations in cases of such descriptions as are specified in the regulations.

(13) The Treasury may by regulations make provision modifying the operation of sections 213H to 213K in relation to cases where the relevant normal pension age in relation to an individual and an arrangement is not the same in relation to all the rights or benefits under the arrangement.

213M Uprating of opening rights, pension and lump sum

213M (1) This section applies for uprating UOR under section 213H and UOP and UOLS under section 213J.

(2) Each is to be increased by the appropriate percentage.

(3) The appropriate percentage for a tax year is the percentage arrived at for the tax year in accordance with provision made by order made by the Treasury.

(4) An order under subsection (3)—

(a) must make provision for securing that the appropriate percentage for a tax year reflects any decrease in the value of money over a specified period, and

(b) may do so by reference to any movement in a specified index, or an average of any movements in specified indices, over a specified period.

(5) If an order is made under subsection (3) which amends any provision included in an order by virtue of subsection (4)(b), the Treasury must as soon as reasonably practicable after the making of the order carry out a review of the provision made by the regulations for the time being in force under section 213L(1).

213N Hybrid arrangements

213N (1) The pension savings amount in respect of a hybrid arrangement is the greater or greatest of such of amounts A, B and C as are relevant amounts.

(2) An amount is a relevant amount in the case of a hybrid arrangement if, in any circumstances, the benefits that may be provided to or in respect of the individual under the arrangement may be benefits of the variety mentioned in the definition of that amount.

(3) Amount A is what would be the pension savings amount under section 213G if the benefits provided to or in respect of the individual under the arrangement were money purchase benefits other than cash balance benefits.

(4) Amount B is what would be the pension savings amount under section 213H if the benefits provided to or in respect of the individual under the arrangement were cash balance benefits.

(5) Amount C is what would be the pension savings amount under section 213J if the benefits provided to or in respect of the individual under the arrangement were defined benefits.

213O Anti-avoidance

213O (1) This section applies if a high income excess relief charge scheme applies in the case of the individual for the tax year.

(2) A scheme is a high income excess relief charge scheme if in the case of the individual for the tax year conditions A to C are met.

(3) Condition A is that it is reasonable to assume that the main purpose, or one of the main purposes, of the scheme is to avoid the whole or any part of the liability of the individual to the high income excess relief charge for the tax year.

(4) Condition B is that the scheme involves either or both of the following—

(a) reducing the individual's gross income or relevant income for the tax year, and

(b) reducing the total pension savings amount in the case of the individual for the tax year.

(5) Condition C is that the scheme involves the reduction, or any of the reductions, being redressed by—

(a) an increase in the individual's gross income or relevant income, or the total pension savings amount in the case of the individual, for a different tax year, or

(b) the provision at any time of some other benefit to or for the benefit of the individual or any person who is a dependant of, or is connected with, the individual.

(6) The individual is to be treated for the purposes of the high income excess relief charge as if—

(a) the individual's gross income and relevant income for the tax year, and

(b) the total pension savings amount in the case of the individual for the tax year,

were what they would be apart from the scheme.

(7) In this section “scheme” includes any arrangement, agreement, understanding, transaction or series of transactions (whether or not legally enforceable).

(8) Section 993 of ITA 2007 (meaning of “connected” persons) applies for the purposes of subsection (5).

213P Power to make regulations about charge

213P (1) The Treasury may by regulations make provision about the high income excess relief charge.

(2) The provision may include modifications of any provision made in sections 213A to 213O.

(3) The provision may include provision consequential on, or supplementary or incidental to, the provision made by those sections and transitional provisions (including provision making modifications of enactments).

(4) The provision may not include provision increasing any person's liability to tax.

(5) “Modifications” includes amendments.”

3 (1) Section 282 (orders and regulations) is amended as follows.

(2) After subsection (1) insert—

“(1A) The first regulations under section 213L(1) may not be made unless a draft of the instrument containing them has been laid before, and approved by a resolution of, the House of Commons.”

(3) In subsection (2), after “Part” insert “ (other than one of which a draft has been approved by a resolution of the House of Commons) ”.

4 In Schedule 34 (non-UK schemes: application of certain charges), after paragraph 7A insert—

“High income excess relief charge

7B (1) The Commissioners for Her Majesty's Revenue and Customs may by regulations make provision for the provisions of this Part of this Act relating to the high income excess relief charge to apply in relation to individuals who are or have been members of a currently-relieved non-UK pension scheme subject to modifications contained in the regulations.

(2) Regulations under sub-paragraph (1) may—

(a) include provision having effect in relation to times before they are made,

(b) confer discretion on the Commissioners for Her Majesty's Revenue and Customs or officers of Revenue and Customs, and

(c) make different provision for different cases.”

5 The amendments made by this Schedule have effect for the tax year 2011-12 and subsequent tax years.