Finance Act 2006 (c. 25)

(The document as of February, 2008)

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(b) immediately before that date the pension scheme was not prohibited from holding the interest in the property,

and, in a case where immediately before that date the interest in the property was held directly by a person other than the pension scheme, if the pension scheme was not prohibited from holding the interest it held in that person at that time.

(2) This paragraph also applies in relation to an investment-regulated pension scheme if--

(a) before 6th April 2006 a contract to acquire an interest in property was entered into by the pension scheme or a person in whom the pension scheme directly or indirectly held an interest when the contract was entered into,

(b) the pension scheme does not acquire the interest in the property before that date,

(d) immediately before that date the pension scheme would not have been prohibited from holding the interest in the property,

and, in a case where the contract to acquire the interest in the property was entered into by a person in whom the pension scheme directly or indirectly held an interest, if the pension scheme was not prohibited from holding the interest it held in that person immediately before that date.

(3) The taxable property provisions (apart from this paragraph and paragraphs 37B to 37E) do not apply in relation to the pension scheme and the interest in the property.

(4) For the purposes of this Schedule a pension scheme is to be treated as having been prohibited from holding an interest in property, or in a person, immediately before 6th April 2006 if approval could have been withdrawn under section 591B, 620(7) or 650 of ICTA on the basis of the holding of the interest at that time.

(5) This paragraph is subject to paragraphs 37B to 37E.

37B (1) Paragraph 37A ceases to apply to an investment-regulated pension scheme and an interest in taxable property on the relevant date if Condition A, B or C is met.

(2) Condition A is that there is a change in the occupation or use of the property such that, if the change had occurred immediately before 6th April 2006, the pension scheme would have been prohibited from holding the interest in the property at that time.

(3) Condition B is that--

(a) the taxable property is residential property on 6th April 2006, and

(b) improvement works on the property are begun on or after that date.

(4) Condition C is that there is a change in the pension scheme's interest in--

(a) any person who holds the interest in the property directly, or

(b) any person who has entered into a contract to acquire the interest in the property,

such that, if the change had occurred immediately before 6th April 2006, the pension scheme would have been prohibited from holding the interest in the person at that time.

(5) For the purposes of this paragraph the relevant date is--

(a) where Condition A is met, the date on which the change in the occupation or use of the taxable property takes place,

(b) where Condition B is met, the date on which the improvement works are substantially completed, or

but where the pension scheme has not acquired the interest in the property by what would otherwise be the relevant date, the relevant date is the date on which it acquires the interest.

(6) Where Condition A, B or C is met the pension scheme is to be treated for the purposes of the taxable property provisions as acquiring the interest in the property on the relevant date.

(7) For the purposes of Schedule 29A the total taxable amount in relation to any unauthorised payment which the pension scheme is treated as having made by reason of the acquisition is--

(a) the market value on the relevant date of the interest in the property held by the person who holds it directly, or

(b) if the interest in the property is a lease at a rent, the amount of consideration that would be treated as given by the person for the lease by virtue of paragraph 34 of Schedule 29A if it were assigned to the person on that date.

(8) Where--

(a) the pension scheme holds the interest in the property directly, and

(b) the interest is not a lease at a rent,

for the purposes of section 185G (gains from taxable property: disposal by person holding directly) the pension scheme is to be treated as having acquired the interest for a consideration equal to its market value on 6th April 2006.

(9) For the purposes of sub-paragraph (3)(b) improvement works are to be taken to have been begun before 6th April 2006 only if--

(a) a binding contract for the works was entered into before that date, or

(b) a substantial amount of the works has been carried out before that date.

(10) For the purposes of this Schedule "improvement works" means, in relation to a property, works which--

(a) materially improve the property, and

(b) are not carried out wholly for the purposes of complying with a statutory requirement or a requirement imposed by a government department, a statutory body or a person holding a statutory office.

(11) For the purposes of sub-paragraph (10)(a) a property is materially improved by works only if--

(a) its market value on the date the works are substantially completed ("MVW") exceeds what would have been its market value on that date if the works had not been carried out ("MV"), and

(b) the amount by which MVW exceeds MV is greater than 20% of MV.

(12) For the purposes of sub-paragraph (10)(b)--

"statutory body" means a body set up by or under an enactment (including an enactment comprised in, or an instrument made under, an Act of the Scottish Parliament);
"statutory office" means a body set up by or under such an enactment; and
"statutory requirement" means a requirement imposed by provision made by or under such an enactment.

(13) This paragraph is subject to paragraph 37D.

37C (1) This paragraph applies where--

(a) on 6th April 2006 an investment-regulated pension scheme holds an interest in taxable property which it acquired before that date, and

(b) immediately before that date the pension scheme was prohibited from holding the interest.

(2) This paragraph also applies where--

(a) on 6th April 2006 an investment-regulated pension scheme holds an interest in taxable property indirectly which it acquired before that date, and

(b) immediately before that date the pension scheme was prohibited from holding the interest it held in the person that held the interest in the property directly at that time.

(3) The pension scheme is to be treated for the purposes of the taxable property provisions as acquiring the interest in the property on 6th April 2006.

(4) For the purposes of Schedule 29A the total taxable amount in relation to any unauthorised payment which the pension scheme is treated as having made by reason of the acquisition is--

(a) the market value on 6th April 2006 of the interest in the property held by the person who holds it directly, or

(5) Where--

(a) the pension scheme holds the interest in the property directly, and

(b) the interest is not a lease at a rent,

37D (1) This paragraph applies where--

(a) sub-paragraph (1) or (2) of paragraph 37A applies in relation to a pension scheme and an interest in property,

(b) immediately before 6th April 2006 the pension scheme was a self-invested personal pension scheme or a small self-administered scheme,

(c) on that date the pension scheme holds the interest in the property indirectly or (if sub-paragraph (2) of paragraph 37A applies in relation to the pension scheme and the interest in the property) the pension scheme will hold the interest indirectly once it has been acquired pursuant to the contract,

(d) the property is residential property on that date, and

(e) improvement works on the property were begun after 5th December 2005.

(2) This paragraph also applies where--

(a) sub-paragraph (1) or (2) of paragraph 37A applies in relation to a pension scheme and an interest in property,

(b) immediately before 6th April 2006 the pension scheme was a small self-administered scheme,

(d) the pension scheme acquired the interest before 5th August 1991,

(e) the property is residential property on 6th April 2006, and

(f) improvement works on the property were begun after 5th December 2005.

(3) If the works are completed on or after 6th April 2006, paragraph 37B applies in relation to the pension scheme and the interest in the property as if the works were begun on or after that date.

(4) If the works are completed before that date--

(a) paragraph 37A does not apply in relation to the pension scheme and the interest in the property, and

(b) unless the pension scheme has still to acquire the interest in the property on that date, sub-paragraphs (3) to (5) of paragraph 37C apply in relation to the pension scheme and the interest.

(5) For the purposes of this paragraph improvement works are to be taken to have been begun before 6th December 2005 only if--

(a) a binding contract for the works was entered into before that date, or

(b) a substantial amount of the works has been carried out before that date.

37E (1) This paragraph applies where--

(a) paragraph 37A would otherwise apply in relation to a pension scheme and an interest in property,

(b) immediately before 6th April 2006 the pension scheme was a retirement benefits scheme approved under section 590 of ICTA, and

(2) Paragraph 37A does not apply in relation to the pension scheme and the interest in the property.

(3) Unless the pension scheme has still to acquire the interest in the property on 6th April 2006, sub-paragraphs (3) to (5) of paragraph 37C apply in relation to the pension scheme and the interest.

Post-commencement acquisitions of taxable property

37F (1) This paragraph applies where on or after 6th April 2006 an investment-regulated pension scheme acquires an interest in taxable property consisting of tangible moveable property because a person in whom the pension scheme directly or indirectly holds an interest comes to hold the interest in the property directly.

(2) The taxable property provisions (apart from this paragraph and paragraph 37G) do not apply in relation to the pension scheme and the interest in the property if the conditions in sub-paragraph (3) are met.

(3) Those conditions are that--

(a) on 6th April 2006 the pension scheme held the interest in the person by virtue of acquiring it before that date,

(b) immediately before that date the pension scheme was not prohibited from holding the interest in the person,

(c) at no time during the period beginning with that date and ending immediately before the acquisition of the interest in the property has the pension scheme's interest in the person been such that, if it had held that interest in the person immediately before 6th April 2006, it would have been prohibited from holding that interest at that time, and

(d) the person acquires the interest in the property so that the property may be used for the purposes of a trade, profession or vocation carried on by the person or for the purposes of its administration or management.

(4) This paragraph is subject to paragraph 37G.

37G (1) Where Condition A or B is met in relation to the pension scheme and an interest in property to which paragraph 37F has applied, the pension scheme is to be treated for the purposes of the taxable property provisions as acquiring the interest in the property on the date on which the Condition is met.

(2) Condition A is that there is a change in the pension scheme's interest in the person who holds the interest in the property directly such that, if the change had occurred immediately before 6th April 2006, the pension scheme would have been prohibited from holding the interest in the person at that time.

(3) Condition B is that the property ceases to be used for the purposes of--

(a) a trade, profession or vocation carried on by the person, or

(b) its administration or management.

(4) For the purposes of Schedule 29A the total taxable amount in relation to any unauthorised payment which the pension scheme is treated as having made by reason of the acquisition is the market value on the relevant date of the interest in the property held by the person.

37H (1) This paragraph applies where on or after 6th April 2006 an investment-regulated pension scheme acquires an interest in taxable property consisting of residential property because a person in whom the pension scheme directly or indirectly holds an interest comes to hold the interest in the property directly.

(2) The taxable property provisions (apart from this paragraph and paragraph 37I) do not apply in relation to the pension scheme and the interest in the property if the conditions in sub-paragraph (3) are met.

(3) Those conditions are that--

(a) on 6th April 2006 the pension scheme held the interest in the person by virtue of acquiring it before that date,

(b) immediately before that date the pension scheme was not prohibited from holding the interest in the person,

(c) immediately before that date the person had a business involving the holding and letting of residential property and held directly five or more assets consisting of interests in residential property for the purposes of that business,

(d) at no time during the period beginning with that date and ending immediately before the acquisition of the interest in the property has the pension scheme's interest in the person been such that, if it had held that interest in the person immediately before 6th April 2006, it would have been prohibited from holding that interest at that time,

(e) the person acquires the interest in the property for the purposes of its property rental business, and

(f) after the acquisition of the interest in the property, the property is not occupied or used by a member of the pension scheme or a person connected with such a member.

(4) This paragraph is subject to paragraph 37I.

(5) Section 839 of ICTA (connected persons) applies for the purposes of this paragraph.

37I (1) Where Condition A, B or C is met in relation to the pension scheme and an interest in property to which paragraph 37H has applied, the pension scheme is to be treated for the purposes of the taxable property provisions as acquiring, on the date on which the Condition is met, each interest in property--

(a) which it holds on that date, and

(b) to which paragraph 37H has applied before that date.

(3) Condition B is that the property ceases to be used for the purposes of the person's property rental business.

(4) Condition C is that the property is occupied or used by a member of the pension scheme or a person connected with such a member.

(5) For the purposes of Schedule 29A the total taxable amount in relation to any unauthorised payment which the pension scheme is treated as having made by reason of an acquisition of an interest in property treated as made by virtue of this paragraph is--

(a) the market value on the relevant date of the interest in the property held by the person who holds it directly, or

Section 160

SCHEDULE 22 Pension schemes: inheritance tax

Introductory

1 IHTA 1984 is amended as follows.

Dispositions

2 In section 12 (dispositions conferring retirement benefits), after subsection (2) insert--

" (2A) Subsection (2B) below applies where a person who is a member of a registered pension scheme, and who has not reached the age of 75, has omitted to exercise pension rights under the pension scheme and, if the words "(or latest time)" were omitted from subsection (3) of section 3 above,--

(a) that subsection would have treated the person as having made a disposition by reason of omitting to exercise the pension rights, but

(b) section 10 above would have prevented the disposition being a transfer of value.

(2B) Section 3(3) above does not actually treat the person as making a disposition by reason of omitting to exercise the pension rights (at the latest time when the person could have exercised them) unless the condition in subsection (2C) below is satisfied.

(2C) That condition is that--

(a) the person makes an actual pensions disposition under the pension scheme which is not prevented from being a transfer of value by section 10 above within the period of two years ending with the date of his death, and

(b) it is not shown that, when he made the actual pensions disposition, he had no reason to believe that he would die within that period.

(2D) A disposition treated by virtue of section 3(3) above as made by any person who is a member of a registered pension scheme, and who has not reached the age of 75, by reason of omitting to exercise pension rights under the pension scheme is not a transfer of value to the extent that it results in--

(a) the provision of a lump sum death benefit or pension death benefit (or both) to a relevant dependant, or

(b) the making of a payment to a charity.

(2E) A disposition made by a person who is a member of a registered pension scheme, and who has reached the age of 75, is not a transfer of value if the disposition consists in the person--

(a) making an actual pensions disposition under the pension scheme, or

(b) omitting to exercise pension rights under the pension scheme.

(2F) For the purposes of this section--

(a) a person omits to exercise pension rights under a pension scheme if he does not become entitled to the whole or any part of a pension or lump sum (or both) under the pension scheme at a time when he was eligible to become so entitled (whether or not he does become entitled to any other benefits under the pension scheme); and

(b) a person makes an actual pensions disposition under a registered pension scheme if he makes a disposition within section 3(1) above by doing anything in relation to, or to rights under, the pension scheme.

(2G) In this section--

"entitled", in relation to a pension or lump sum, shall be construed in accordance with section 165(3) or 166(2) of the Finance Act 2004;
"lump sum death benefit" has the same meaning as in Part 4 of that Act (see section 168(2) of that Act);
"pension" has the same meaning as in that Part of that Act (see section 165(2) of that Act);
"pension death benefit" has the meaning given by section 167(2) of that Act; and
"relevant dependant", in relation to a person, means a dependant (within the meaning given by paragraph 15 of Schedule 28 to that Act) who is the person's spouse or civil partner immediately before his death or someone who is financially dependent on the person at that time. " ;

and, in the sidenote, for "retirement benefits" substitute "benefits under pension scheme".

Secured pension funds

3 In subsection (2) of section 151 (treatment of pension rights etc) insert at the beginning "Subject to sections 151A and 151C below,".

4 After that section insert--

" 151A Person dying with alternatively secured pension fund

(1) This section applies where a member of a registered pension scheme has an alternatively secured pension fund in respect of an arrangement under the pension scheme immediately before his death.

(2) In determining for the purposes of this Act the value of his estate immediately before his death he shall be treated as if he had been beneficially entitled to property with a value equal to the relevant amount.

(3) The relevant amount is--

(a) the aggregate of the amount of the sums and the value of the assets forming part of the member's alternatively secured pension fund immediately before his death, less

(b) the aggregate of the amount of the sums and the value of the assets expended on dependants' benefits within the period of six months beginning with the end of the month in which his death occurs.

(4) For this purpose sums or assets are expended on dependants' benefits at any time if they (or sums or assets directly or indirectly deriving from them) are at that time--

(a) applied towards the provision of a dependants' scheme pension for a relevant dependant,

(b) applied towards the provision of a dependants' annuity for a relevant dependant,

(d) designated as available for the payment of dependants' alternatively secured pension to a relevant dependant,

or if the sums (or sums directly or indirectly deriving from the sums or assets) are at that time paid as a charity lump sum death benefit.

(5) In this section--

"alternatively secured pension fund" has the same meaning as in Part 4 of the Finance Act 2004 (see paragraph 11 of Schedule 28 to that Act);
"charity lump sum death benefit" has the meaning given by paragraph 18 of Schedule 29 to that Act;
"dependants' alternatively secured pension" has the meaning given by paragraph 19 of Schedule 28 to that Act;
"dependants' annuity" has the same meaning as in Part 4 of that Act (see paragraph 17 of that Schedule);
"dependants' scheme pension" has the same meaning as in that Part of that Act (see paragraph 16 of that Schedule);
"dependants' unsecured pension" has the meaning given by paragraph 18 of that Schedule; and
"relevant dependant", in relation to a member of a registered pension scheme who dies, means a dependant (within the meaning of paragraph 15 of that Schedule) who--
(a)
is the person's spouse or civil partner immediately before his death; or
(b)
is financially dependent on the person at that time.

151B Relevant dependant with pension fund inherited from member over 75

(1) This section applies where--

(a) a relevant dependant of a person who, immediately before his death, was a member of a registered pension scheme has a dependant's unsecured pension fund, or a dependant's alternatively secured pension fund, in respect of an arrangement under the pension scheme immediately before his death or immediately before ceasing to be a relevant dependant of the member,

(b) the member had reached the age of 75 at the time of his death and had an alternatively secured pension fund in respect of an arrangement under the pension scheme immediately before his death, and

(c) sums or assets forming part of that fund were designated as available for the payment of dependants' unsecured pension, or dependants' alternatively secured pension, to the relevant dependant within the period of six months beginning with the end of the month in which the member's death occurs.

(2) Where this section applies tax shall be charged under this section.

(3) The amount on which tax is charged under this section shall be the aggregate of the amount of the sums and the value of the assets forming part of the dependant's unsecured pension fund, or the dependant's alternatively secured pension fund, in respect of the arrangement immediately before the relevant dependant died or ceased to be a relevant dependant of the member.

(4) But where tax is chargeable under this section by reason of the death of the relevant dependant, that amount is reduced by so much of sums forming part of the dependant's unsecured pension fund, or the dependant's alternatively secured pension fund, (or sums directly or indirectly deriving from sums or assets forming part of that fund) as are paid to a charity within the period of six months beginning with the end of the month in which his death occurs.

(5) Tax charged under this section shall be charged at the rate or rates at which it would have been charged on the death of the member if--

(a) the amount mentioned in subsection (3) above (as reduced under subsection (4) above) had been included in the value transferred by the chargeable transfer made on his death, and

(b) the amount on which the tax is charged had formed the highest part of that value.

(6) In this section--

"alternatively secured pension fund" has the same meaning as in Part 4 of the Finance Act 2004 (see paragraph 11 of Schedule 28 to that Act);
"dependants' alternatively secured pension" has the meaning given by paragraph 19 of that Schedule;
"dependant's alternatively secured pension fund" has the same meaning as in that Part of that Act (see paragraph 25 of that Schedule);
"dependants' unsecured pension" has the meaning given by paragraph 18 of that Schedule;
"dependant's unsecured pension fund" has the same meaning as in that Part of that Act (see paragraph 22 of that Schedule); and
"relevant dependant", in relation to a member of a registered pension scheme who dies, means a dependant (within the meaning of paragraph 15 of that Schedule) who--
(a)
is the person's spouse or civil partner immediately before his death; or
(b)
is financially dependent on the person at that time.

151C Dependant dying with other pension fund

(1) This section applies where--

(a) a dependant of a member of a registered pension scheme has a dependant's alternatively secured pension fund in respect of an arrangement under the pension scheme immediately before his death, and

(b) section 151B above does not apply.

(2) In determining for the purposes of this Act the value of the dependant's estate immediately before his death he shall be treated as if he had been beneficially entitled to property with a value equal to the relevant amount.

(3) The relevant amount is--

(a) the aggregate of the amount of the sums and the value of the assets forming part of the dependant's alternatively secured pension fund immediately before his death, less

(b) so much of sums forming part of the dependant's alternatively secured pension fund (or sums directly or indirectly deriving from sums or assets forming part of that fund) as are paid as a charity lump sum death benefit within the period of six months beginning with the end of the month in which his death occurs.

(4) In this section--

"charity lump sum death benefit" has the meaning given by paragraph 18 of Schedule 29 to the Finance Act 2004;
"dependant" has the meaning given by paragraph 15 of that Schedule 28 to that Act; and
"dependant's alternatively secured pension fund" has the same meaning as in Part 4 of that Act (see paragraph 25 of Schedule 28 to that Act). "

Liability

5 (1) Section 200 (liability for tax: transfer on death) is amended as follows.

(2) In subsection (1), after "any person are" insert "(subject to subsection (1A) below)".

(3) After that subsection insert--

" (1A) The person liable for tax chargeable by virtue of section 151A or 151C above in relation to any registered pension scheme is the scheme administrator of the pension scheme. "

6 In section 210 (liability: pension rights etc) re-number the existing provision as subsection (1) of that section and insert after it--

" (2) The person liable for tax chargeable under section 151B above is the scheme administrator of the registered pension scheme. "

Delivery of accounts

7 (1) Section 216 (delivery of accounts) is amended as follows.

(2) In subsection (1), after paragraph (bc) insert--

" (bca) is liable under section 200(1A) or 210(2) above for tax in respect of any amount, or would be so liable if tax were chargeable in respect of that amount, or " .

(3) In subsection (3)(a), after "death" insert "(or would do apart from section 151A(3)(b) or 151C(3)(b) above)".

(4) In subsection (4), insert at the end "(or would be apart from section 151A(3)(b), 151C(3)(b) or 151B(4) above)".

(5) In subsection (6), after paragraph (ab) insert--

" (ac) in the case of an account to be delivered by the scheme administrator of a registered pension scheme, before the expiration of the period of twelve months from the end of the month in which the death occurs or the person ceases to be a relevant dependant of the member; " .

Payment

8 In section 226(4) (payment), for "or 126" substitute ", 126 or 151B".

Interest

9 In section 233(1)(c) (interest on unpaid tax), for "or 126" substitute ", 126 or 151B".

Interpretation

10 (1) Section 272 (general interpretation) is amended as follows.

(2) After the definition of "local authority" insert--

" "member", in relation to a registered pension scheme, has the same meaning as in Part 4 of the Finance Act 2004 (see section 151 of that Act); " .

(3) After the definition of "reversionary interest" insert--

" "scheme administrator", in relation to a registered pension scheme, has the same meaning as in Part 4 of the Finance Act 2004 (see sections 270 to 274 of that Act); " .

Rates of tax

11 In Schedule 2 (provisions applying on reduction of tax), after paragraph 6 insert--

" Relevant dependant with pension fund inherited from member over 75

6A Where tax is chargeable under section 151B of this Act on an occasion after a reduction and the rate or rates at which it is charged fall to be determined by reference to the death of a person which occurred before that reduction (or before that and one or more other reductions) that section applies as if the Table in Schedule 1 as substituted by that reduction (or by the most recent of those reductions) had been in force at the time of that person's death. "

Transitional

12 The reference in section 12(2A) of IHTA 1984 (inserted by paragraph 2) to a member of a registered pension scheme having omitted to exercise pension rights under the pension scheme includes an omission before 6th April 2006 in relation to a pension scheme which on that date becomes a registered pension scheme.

Section 161

SCHEDULE 23 Pension schemes etc: miscellaneous

Introduction

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

Meaning of "pension credit member" etc: person dying before discharge of liability

2 In section 151(5) (pension credit members), insert at the end "; and, if a person dies having become entitled to pension credits but without having rights attributable to them, the person is to be treated as having acquired, immediately before death, the rights by virtue of which the liability in respect of the pension credits is subsequently discharged."

Unauthorised payments: former members and sponsoring employers etc

3 (1) Section 160 (payments by registered pension schemes) is amended as follows.

(2) In subsection (1), before "member" insert "person who is or has been a".

(3) In subsection (2)--

(a) in paragraphs (a) and (b), before "member" insert "person who is or has been a", and

(b) in paragraph (b), for "section 172, 173 or 174" substitute "this Part".

(4) In subsections (3) and (4)(a) and (b), before "sponsoring" insert "person who is or has been a".

4 (1) Section 161 (meaning of "payment" etc) is amended as follows.

(2) In subsection (5)--

(a) before "member", in the first, third and last places, insert "person who is or has been a", and

(b) for "a member at the date of the member's" substitute "such a person at the date of the person's".

(3) In subsections (6) and (7)--

(a) before "member", in the first and last places, insert "person who is or has been a", and

(b) for "a member at the date of the member's" substitute "such a person at the date of the person's".

5 In section 162(3) and (4) (meaning of "loan")--

(a) before "member", in the first, second and last places, insert "person who is or has been a", and

(b) for "a member or sponsoring employer of the pension scheme" substitute "such a person".

6 In section 164 (authorised member payments)--

(a) before "member" insert "person who is or has been a",

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