The Pension Protection Fund (Tax) Regulations 2006

Explanatory Note

(This note is not part of the Regulations)

In the Pensions Act 2004 (c. 35), Part 2 establishes and deals with the Board of the Pension Protection Fund (“the Board”). The Board is a body corporate, and has two main functions. First, the Board is to administer the Pension Protection Fund, from which compensation will be paid to members of certain pension schemes which are underfunded and no longer have a solvent sponsoring employer; and (secondly) the Board is to administer the Fraud Compensation Fund, from which compensation will be paid to certain pension schemes which no longer have a solvent sponsoring employer in cases of fraud and misappropriation of scheme assets.

In the Finance Act 2004 (c. 12), in Part 4 made new provision relating to pension schemes; and this new provision comes into force on 6th April 2006.

These Regulations, made under powers conferred by section 102 of the Finance Act 2005 (c. 7), make provision, in relation to the Board, the Pension Protection Fund and the Fraud Compensation Fund, for the application of income tax, corporation tax, capital gains tax, inheritance tax, and stamp duty land tax during the period beginning on 6th April 2006.

In these Regulations, regulation 1 deals with citation and commencement, and regulations 2 and 3 with interpretation.

Regulation 4 contains the principal provision, providing that the Tax Acts apply to the Pension Protection Fund in the same way as they apply to a registered pension scheme.

The remaining regulations then make further detailed modifications of tax legislation with the object of ensuring that the tax treatment of the Pension Protection Fund is equivalent to the tax treatment of a registered pension scheme. These regulations include provision to ensure that gains and losses accruing on disposals of investments held by the Board for the purposes of the Pension Protection Fund or the Fraud Compensation Fund are not chargeable gains or allowable losses (regulation 38), and to eliminate any possibility that receipt of a fraud compensation payment or of one of a number of related payments may be liable to capital gains tax or to corporation tax on chargeable gains (regulation 44).

No regulatory impact assessment has been prepared for these Regulations, since the effect on business will be negligible. However, information about the impact of the Pension Protection Fund on business can be found in the Regulatory Impact Assessment for the Pensions Bill 2004, published at www.dwp.gov.uk/resourcecentre/ria.

A regulatory impact assessment in respect of the provisions of Part 4 of the Finance Act 2004 and subordinate legislation under it was published by the Board of Inland Revenue on 8th April 2004, and is available on the website of HM Revenue and Customs at www.hmrc.gov.uk/ria/simplifying-pensions.pdf or by writing to the Capital & Savings Ministerial Correspondence Unit, 1st Floor Ferrers House, PO Box 38, Castle Meadow Road, Nottingham, NG2 1BB.