Finance Act 2004

• (b) otherwise, if the employment in which the member is so employed during that period,

is materially different in nature from the employment in which the member was employed immediately before becoming entitled to the benefits mentioned in sub-paragraph (7)(a).

• (7I) For the purposes of sub-paragraph (7D) “employment on compulsory recall” means permanent service—

• (a) under Part 4 of the Reserve Forces Act 1996,

• (b) under Part 5 of that Act,

• (c) under a call-out or recall order made under that Act,

• (d) having been called out or recalled under the Reserve Forces Act 1980, or

• (e) because of any other call-out or recall obligation of an officer.

• (7J) Section 1122 of the Corporation Tax Act 2010 (connected persons) applies for the purposes of this paragraph.

• (7K) In sub-paragraph (7F)(c)—

• “coronavirus” has the same meaning as in the Coronavirus Act 2020 (see section 1(1) of that Act);

• “the coronavirus period” means the period beginning with 1 March 2020 and ending with 1 November 2020.

• (7L) The Treasury may by regulations amend the definition of “the coronavirus period” in sub-paragraph (7K) so as to replace the later of the dates specified in it with another date falling before 6 April 2021.

• (7M) The power in sub-paragraph (7L) may be exercised on more than one occasion.

• (8) The member’s protected pension age is the age from which the member had an actual or prospective right to any benefit under the protected pension scheme on 5th April 2006 (or, where condition B is met, under the original pension scheme on that date).

• (9) But this paragraph does not have effect so as to give the member a protected pension age of more than 50 at any time before 6th April 2010.

23

• (1) This paragraph applies in relation to a registered pension scheme and a member of the pension scheme if—

• (a) the pension scheme is a protected pension scheme, and

• (b) the retirement condition is met in relation to the member and the pension scheme.

• (2) A pension scheme is a protected pension scheme if condition A or condition B is met.

• (3) Condition A is met if—

• (a) the pension scheme was within paragraph (f) or (g) of paragraph 1(1), and

• (b) the entitlement condition is met in relation to the member and the pension scheme.

• (4) The entitlement condition is met in relation to the member and the pension scheme if—

• (a) on 5th April 2006 the member had an actual or prospective right under the pension scheme to a pension from an age of less than 50, and

• (b) the member’s occupation was on that date (or had been) one prescribed by regulations made by the Board of Inland Revenue.

• (5) Condition B is met if the member is a member of the pension scheme (“a transferee pension scheme”) as a result of—

• (a) a block transfer from the pension scheme (“the original pension scheme”) in relation to which condition A is met to the transferee pension scheme, or

• (b) a block transfer to the transferee pension scheme from a pension scheme that was a transferee pension scheme in relation to the original pension scheme by virtue of the previous application of paragraph (a) or the previous application (on one or more occasions) of this paragraph.

• (6) “Block transfer” has the same meaning as in paragraph 22(6) and (6A), but for this purpose paragraph 22(6A)(c) is to be read as if its reference to paragraph 22(7)(a) were a reference to sub-paragraph (7) of this paragraph.

• (7) The retirement condition is met in relation to the member and the pension scheme if the member becomes entitled to all the pensions payable to the member under arrangements under the pension scheme (to which the member did not have an actual entitlement on or before 5th April 2006) on the same date.

• (8) The member’s protected pension age is the age from which the member had an actual or prospective right to a pension under the protected pension scheme on 5th April 2006 (or, where condition B is met, under the original pension scheme on that date).

Lump sum rights exceeding £375,000: primary and enhanced protection

24

• (1) If the lump sum condition and the registration condition are met in relation to an individual—

• (a) paragraphs 27 to 29 (which modify Schedule 29 and paragraph 12 of this Schedule in relation to pension commencement lump sums), ...

• (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

apply in relation to the individual.

• (2) The lump sum condition is met if on 5th April 2006 the amount of an individual’s total lump sum rights exceeds £375,000 (25% of the standard lifetime allowance for the tax year 2006-07).

• (3) Paragraph 25 defines the amount of an individual’s total lump sum rights on that date.

• (4) The registration condition is met if either or both of the notice requirements is met.

• (5) The first notice requirement is met if notice of intention to rely on paragraph 7 (primary protection) is given to the Inland Revenue in accordance with regulations under that paragraph in relation to the individual.

• (6) The second notice requirement is met if notice of intention to rely on paragraph 12 (enhanced protection) is given to the Inland Revenue in accordance with regulations under that paragraph in relation to the individual.

25

• (1) The amount of an individual’s total lump sum rights on 5th April 2006 is—

$$VCPR4+VULSR$where—VCPR is the value of the individual’s relevant crystallised pension rights on 5th April 2006, calculated in accordance with paragraph 10, andVULSR is the value of the individual’s relevant uncrystallised lump sum rights on that date.$

• (2) The value of the individual’s relevant uncrystallised lump sum rights on 5th April 2006 is the aggregate value of the individual’s uncrystallised lump sum rights on that date under each relevant pension arrangement relating to the individual.

• (3) An uncrystallised lump sum right is a right to a lump sum which on 5th April 2006 is prospective (rather than actual).

• (4) An arrangement is a “relevant pension arrangement”if it is an arrangement under a pension scheme within paragraph 1(1).

• (5) The value of the individual’s uncrystallised lump sum rights under an arrangement on 5th April 2006—

• (a) in the case of an arrangement under a pension scheme falling within paragraph 1(1)(f), is 25% of the value of the funds held for the purposes of the arrangement on that date, and

• (b) in the case of any other arrangement, is an amount calculated in accordance with sub-paragraph (6).

• (6) The amount is the amount of any lump sum to which the individual would have been entitled under the arrangement on 5th April 2006 on the assumption that the individual became entitled to the present payment of a lump sum under the arrangement on that date.

• (7) In calculating an amount in accordance with sub-paragraph (6) the valuation assumptions apply but as if the reference to such age (if any) as must have been reached to avoid any reduction in benefits on account of age in paragraph (a) of section 277 were to the relevant age; and for this purpose “the relevant age” is—

• (a) if on 10th December 2003 the terms of the arrangement made provision for a reduction in the amount of benefits payable in respect of rights under the arrangement on account of the holder of the rights being below a particular age, that age, and

• (b) otherwise, 60.

26

• (1) This paragraph applies if any of the individual’s uncrystallised lump sum rights on 5th April 2006 are rights under one or more arrangements under a pension scheme or schemes within paragraph 1(1)(a) to (d).

• (2) The value of the individual’s uncrystallised lump sum rights on 5th April 2006 under the arrangement, or the aggregate of the values of the individual’s uncrystallised lump sum rights on 5th April 2006 under such of the arrangements as relate to a particular employment, is ...—

• (a) the value, or the aggregate of the values, calculated under paragraph 25, or (if lower)

• (b) the maximum permitted lump sum.

• (3) “The maximum permitted lump sum” means

• (a) in the case of an arrangement under a pension scheme which immediately before 6th April 2006 was within section 611A(1)(a) of ICTA, the maximum lump sum that could be paid to the individual under the pension scheme on 5th April 2006, and

• (b) in any other case,

the maximum lump sum that could be paid to the individual on 5th April 2006 under the arrangement or arrangements if it or they were made under a pension scheme within paragraph 1(1)(a) without giving the Board of Inland Revenue grounds for withdrawing approval of the pension scheme under section 591B of ICTA.

• (4) For the purposes of sub-paragraph (3) it is to be assumed—

• (a) in the case of any arrangement, that if the individual was in the employment to which the arrangement or arrangements relates or relate on 5th April 2006 the individual left the employment on that date, and

• (aa) in the case of an arrangement within sub-paragraph (3)(a), that the valuation assumptions apply (see section 277),

• (b) in the case of any other arrangement, that if the individual had not reached the lowest age at which a lump sum may be paid under a pension scheme within paragraph 1(1)(a) to a person in good health without giving the Board of Inland Revenue grounds for withdrawing the approval of the pension scheme that fact would not give the Board such grounds.

• (5) Whether an arrangement relating to an individual relates to an employment is to be determined in accordance with paragraph 9(6).

27

• (1) If (and for so long as) paragraph 12 (enhanced protection) applies in relation to the individual, Schedule 29 to FA 2004 (authorised lump sums - supplementary) has effect in relation to the individual as if—

• (a) in paragraph 1(1)(b) (pension commencement lump sum), the words “all or part of the member’s lump sum allowance is available, and” were omitted;

• (b) for paragraph 2 (pension commencement lump sum: definition of “permitted maximum”) there were substituted—

(2) (1) In paragraph 1 “the permitted maximum”, in relation to a lump sum, means the lower of— (a) the applicable amount in relation to the relevant pension (see paragraphs 2A to 2D), and (b) the amount specified in sub-paragraph (2). (2) That amount is— (a) the maximum amount of a pension commencement lump sum that could have been paid to the member on 5th April 2023 under the arrangement under which the entitlement to the lump sum arises, less (b) the aggregate of each pension commencement lump sum (if any) to which the member has previously become entitled after that date under that arrangement, or, if that produces a negative amount, nil. (3) For the purposes of this paragraph, the maximum amount of a pension commencement lump sum that “could have been paid” on 5th April 2023 is to be determined on the assumption that any condition required to be met before such a payment could be made was met. (4) Sub-paragraphs (5) and (6) apply where— (a) it is necessary to determine for the purposes of this paragraph “the permitted maximum” in relation to a pension commencement lump sum paid after 5th April 2023 under an arrangement (“the paying arrangement”) under a registered pension scheme, and (b) as a result of one or more recognised transfers made in the post-5th April 2023 period, any of the sums and assets applied for the provision of the lump sum were, at any time before the payment of the lump sum, held for the purposes of another arrangement (“a predecessor arrangement”) under a different registered pension scheme. (5) The reference in sub-paragraph (2)(a) to the maximum amount of a pension commencement lump sum that could have been paid on 5th April 2023 under the paying arrangement, so far as the lump sum paid is referable to sums and assets that were held on that date for the purposes of a predecessor arrangement, is a reference to the maximum amount of a pension commencement lump sum that could have been paid on that date under that predecessor arrangement, had those sums and assets (and only those sums and assets) been applied for the provision of the lump sum. (6) A reference in sub-paragraph (2)(b) to a pension commencement lump sum to which the member has become entitled under the paying arrangement before the date on which the lump sum is paid includes a reference to a pension commencement lump sum paid under a predecessor arrangement, so far as it is referable to sums and assets applied for the provision of the pension commencement lump sum paid under the paying arrangement. (7) In this paragraph “the post-5th April 2023 period”, in relation to a lump sum, means the period beginning with 6 April 2023 and ending with the date on which the lump sum is paid.

.

• (2) If (and for so long as) Schedule 29 applies in relation to the individual subject to the modifications in sub-paragraph (1), paragraph 12A of this Schedule has effect in relation to the individual as if sub-paragraph (2)(a) of that paragraph (which contains modifications of Schedule 29 inconsistent with those in sub-paragraph (1)) were omitted.

28

• (A1) If paragraph 12 (enhanced protection) does not apply in relation to the individual, Schedule 29 to FA 2004 (authorised lump sums - supplementary) has effect in relation to the individual as if in paragraph 1(1)(b) (pension commencement lump sum), the words “all or part of the member’s lump sum allowance is available, and” were omitted.

• (1) If paragraph 12 (enhanced protection) does not apply in relation to the individual, ... Schedule 29 applies in relation to the individual with the following modifications.

• (2) If the value of the individual’s relevant uncrystallised lump sum rights on 5th April 2006 (calculated in accordance with paragraphs 25 and 26) was nil, the permitted maximum under paragraph 2 of Schedule 29 is nil.

• (3) Otherwise, for paragraph 2 of Schedule 29 substitute—

(2) (1) In paragraph 1 “the permitted maximum”, in relation to a lump sum, means an amount equal to— $$A-B$where—A is the value of the individual’s relevant uncrystallised lump sum rights on 5 April 2006 (calculated in accordance with paragraphs 25 and 26), as adjusted under sub-paragraph (2);B is the aggregate of the amounts of each pension commencement lump sum to which the individual has previously become entitled, as adjusted under sub-paragraph (3) (or, if the individual has not previously become entitled to a pension commencement lump sum, is nil).$ (2) The adjustment referred to in the definition of A is the multiplication of the value of the individual’s relevant uncrystallised lump sum rights on 5th April 2006 by 1.2 (being £1,800,000 divided by £1,500,000). (3) The adjustment of the amount of a pension commencement lump sum to which the individual has previously become entitled referred to in the definition of B is the multiplication of the amount by— $$£1,800,000C$where C is—if the individual became entitled to the lump sum before 6th April 2012, the standard lifetime allowance at that time;otherwise, £1,800,000.$

29

• (1) If (and for so long as) paragraph 12 (enhanced protection) applies in relation to the individual, paragraphs 2A to 2D of Schedule 29 (meaning of “the applicable amount” in relation to a relevant pension) apply with the following modifications.

• (2) Paragraph 2A of that Schedule (meaning of “the applicable amount” where the relevant pension is income withdrawal) applies as if, for sub-paragraphs (2) to (4), there were substituted—

(2) The applicable amount is— $$AB×C+D$where—A is the value of the individual’s relevant uncrystallised lump sum rights on 5 April 2006, calculated in accordance with paragraphs 25 and 26 of Schedule 36;B is the value of the individual’s uncrystallised pension rights on 5 April 2006, calculated in accordance with paragraphs 8 and 9 of that Schedule;C is the pension commencement lump sum paid;D is—the aggregate of the sums, and the market value of the assets, designated as available for the payment of drawdown pension on that occasion, lessso much (if any) of that amount as represents rights which are attributable to a disqualifying pension credit.$

• (3) Paragraph 2B of that Schedule (meaning of “the applicable amount” where the relevant pension is a lifetime annuity) applies as if, for sub-paragraph (2) there were substituted—

(2) The applicable amount is (subject to sub-paragraph (4))— $$AB×C+D-E$where—A is the value of the individual’s relevant uncrystallised lump sum rights on 5 April 2006, calculated in accordance with paragraphs 25 and 26 of Schedule 36 to FA 2004;B is the value of the individual’s uncrystallised pension rights on 5 April 2006, calculated in accordance with paragraphs 8 and 9 of that Schedule;C is the pension commencement lump sum paid;D is the annuity purchase price;E is—if the annuity is purchased (in whole or in part) by the application of sums or assets representing the whole or part of the member’s drawdown pension fund or flexi-access drawdown fund, the aggregate of the amount of those sums and the market value of those assets;otherwise, so much (if any) of the aggregate of the lump sum and the annuity purchase price as represents the rights which are attributable to a disqualifying pension credit.$

• (4) Paragraph 2C of that Schedule (meaning of “the applicable amount” where the relevant pension is a defined benefits arrangement or a collective money purchase arrangement) applies as if—

• (a) for sub-paragraph (2) there were substituted—

(2) The applicable amount is (subject to sub-paragraph (3))— $$AB×C+D$where—A is the value of the individual’s relevant uncrystallised lump sum rights on 5 April 2006, calculated in accordance with paragraphs 25 and 26 of Schedule 36;B is the value of the individual’s uncrystallised pension rights on 5 April 2006, calculated in accordance with paragraphs 8 and 9 of that Schedule;C is the pension commencement lump sum paid;D is an amount equal to the value of the pension rights crystallised by reason of the individual becoming entitled to the pension (see sub-paragraph (4)).$

;

• (b) after sub-paragraph (3) there were inserted—

(4) The Commissioners for His Majesty’s Revenue and Customs may by regulations make provision about how the value of the pension rights crystallised by reason of the individual becoming entitled to the pension is to be determined for the purposes of sub-paragraph (2).

• (5) Paragraph 2D of that Schedule (meaning of “the applicable amount” where the relevant pension is a money purchase arrangement) applies as if, for sub-paragraph (2), there were substituted—

(2) The applicable amount is— $$AB×C+D$where—A is the value of the individual’s relevant uncrystallised lump sum rights on 5 April 2006, calculated in accordance with paragraphs 25 and 26 of Schedule 36;B is the value of the individual’s uncrystallised pension rights on 5 April 2006, calculated in accordance with paragraphs 8 and 9 of that Schedule;C is the pension commencement lump sum paid;D is the scheme pension purchase price.$

30

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Entitlement to lump sums exceeding 25% of uncrystallised rights

31

• (1) If the pension condition is met in relation to an individual and a registered pension scheme which is a protected pension scheme, the provisions of Schedule 29 relating to pension commencement lump sums apply in relation to the individual and the pension scheme with the modifications specified in paragraph 34(2) (but subject to sub-paragraph (2) of this paragraph and to paragraph 34(3)).

• (1A) For provision about the tax treatment of a pension commencement lump sum the permitted maximum of which is determined under paragraph 2 of Schedule 29 as modified by paragraph 34(3), see paragraph 34A.

• (2) Those provisions do not apply with those modifications if the lump sum condition and registration condition in paragraph 24 are met.

• (3) The pension condition is that

• (a) the individual becomes entitled to all the pensions payable to the individual under arrangements under the pension scheme (to which the individual did not have an actual entitlement on or before 5th April 2006) on the same date, and

• (b) the individual does not become entitled to more than one pension commencement lump sum in connection with becoming entitled to those pensions.

• (4) A registered pension scheme is a protected pension scheme if condition A or condition B is met.

• (5) Condition A is met if—

• (a) the pension scheme was within any of paragraphs (a) to (e) of paragraph 1(1), and

• (b) on 5th April 2006 the lump sum percentage of the individual’s uncrystallised rights under the pension scheme exceeded 25%.

• (6) The lump sum percentage of an individual’s uncrystallised pension rights under a pension scheme on 5th April 2006 is—

$$VULSRVUR×100$where—VULSR is the value of the individual’s uncrystallised lump sum rights under the pension scheme on 5th April 2006, calculated in accordance with paragraph 32, andVUR is the value of the individual’s uncrystallised rights under the pension scheme on 5th April 2006, calculated in accordance with paragraph 33.$

• (7) Condition B is met if the individual is a member of the pension scheme (“a transferee pension scheme”) as a result of—

• (a) a block transfer from the pension scheme (“the original pension scheme”) in relation to which condition A is met to the transferee pension scheme, or

• (b) a block transfer to the transferee pension scheme from a pension scheme that was a transferee pension scheme in relation to the original pension scheme by virtue of the previous application of paragraph (a) or the previous application (on one or more occasions) of this paragraph.

• (8) “Block transfer” has the same meaning as in paragraph 22(6) and (6A), but treating the references there to the member as references to the individual and reading paragraph 22(6A)(c) as if its reference to paragraph 22(7)(a) were a reference to sub-paragraph (3) of this paragraph.

• (9) Where a pension scheme is a protected pension scheme because condition B is met, Schedule 29 as modified by paragraph 34 applies as if the protected pension scheme were the same pension scheme as the original pension scheme.

32

• (1) Subject to sub-paragraph (2), the value of the individual’s uncrystallised lump sum rights under the pension scheme on 5th April 2006 is the aggregate of the value of the individual’s uncrystallised lump sum rights under each arrangement in respect of the individual under the pension scheme, calculated in accordance with paragraph 25(5), on that date.

• (2) If the pension scheme is a relevant pension scheme, the value of the individual’s uncrystallised lump sum rights on 5th April 2006 under an arrangement—

• (a) which relates to a particular employment, and

• (b) in relation to which the excess lump sum condition is met (see sub-paragraph (5) or (6)),

is the amount arrived at in accordance with sub-paragraph (7) or (8).

• (3) A pension scheme is a relevant pension scheme if it falls within paragraph 1(1)(a) to (d).

• (4) Whether an arrangement relating to the individual relates to a particular employment is to be determined in accordance with paragraph 9(6).

• (5) If no other arrangement relating to the individual under a relevant pension scheme relates to the employment to which the arrangement relates, the excess lump sum condition is met in relation to the arrangement if—

• (a) the value of the individual’s uncrystallised lump sum rights under the arrangement calculated in accordance with paragraph 25(5), exceeds

• (b) the amount arrived at in relation to the arrangement in accordance with paragraph 26.

• (6) If one or more other arrangements relating to the individual under a relevant pension scheme or relevant pension schemes relates or relate to the employment to which the arrangement relates, the excess lump sum condition is met in relation to the arrangement if—

• (a) the aggregate of the values of the individual’s uncrystallised lump sum rights under the arrangement and the other arrangement or arrangements, calculated in accordance with paragraph 25(5), exceeds

• (b) the amount arrived at in relation to those arrangements in accordance with paragraph 26;

and the amount by which the aggregate of those values exceeds that amount is the “lump sum excess”.

• (7) Where the excess lump sum condition is met by virtue of sub-paragraph (5), the value of the individual’s uncrystallised lump sum rights under the arrangement is the amount arrived at in accordance with paragraph 26.

• (8) Where the excess lump sum condition is met by virtue of sub-paragraph (6), the value of the individual’s uncrystallised lump sum rights under the arrangement is the value of those rights calculated in accordance with paragraph 25(5), less the appropriate proportion of the lump sum excess.

• (9) The appropriate proportion of the lump sum excess is—

$$VAV$where—V is the value of the individual’s uncrystallised lump sum rights under the arrangement, calculated in accordance with paragraph 25(5), andAV is the aggregate of the values of the individual’s uncrystallised lump sum rights under the arrangement and the other arrangement or arrangements, calculated in accordance with paragraph 25(5).$

33

• (1) Subject to sub-paragraph (2), the value of the individual’s uncrystallised rights under the pension scheme on 5th April 2006 is the aggregate of the value of the individual’s uncrystallised rights under each arrangement in respect of the individual under the pension scheme, calculated in accordance with paragraph 8(5).

• (2) If the pension scheme is a relevant pension scheme, the value of the individual’s uncrystallised rights on 5th April 2006 under an arrangement—

• (a) which relates to a particular employment, and

• (b) in relation to which the excess rights condition is met (see sub-paragraph (5) or (6)),

is the amount arrived at in accordance with sub-paragraph (7) or (8).

• (3) A pension scheme is a relevant pension scheme if it falls within paragraph 1(1)(a) to (d).

• (4) Whether an arrangement relating to the individual relates to a particular employment is to be determined in accordance with paragraph 9(6).

• (5) If no other arrangement relating to the individual under a relevant pension scheme relates to the employment to which the arrangement relates, the excess rights condition is met in relation to the arrangement if—

• (a) the value of the individual’s uncrystallised rights under the arrangement calculated in accordance with paragraph 8(5), exceeds

• (b) the amount arrived at in relation to the arrangement in accordance with paragraph 9(3).

• (6) If one or more other arrangements relating to the individual under a relevant pension scheme or relevant pension schemes relates or relate to the employment to which the arrangement relates, the excess rights condition is met in relation to the arrangement if—

• (a) the aggregate of the values of the individual’s uncrystallised rights under the arrangement and the other arrangement or arrangements, calculated in accordance with paragraph 8(5), exceeds

• (b) the amount arrived at in relation to those arrangements in accordance with paragraph 9(3);

and the amount by which the aggregate of those values exceeds that amount is the “rights excess”.

• (7) Where the excess rights condition is met by virtue of sub-paragraph (5), the value of the individual’s uncrystallised rights under the arrangement is the amount arrived at in accordance with paragraph 9(3).

• (8) Where the excess rights condition is met by virtue of sub-paragraph (6), the value of the individual’s uncrystallised rights under the arrangement is the value of those rights calculated in accordance with paragraph 8(5), less the appropriate proportion of the rights excess.

• (9) The appropriate proportion of the rights excess is—

$$VAV$where—V is the value of the individual’s uncrystallised rights under the arrangement, calculated in accordance with paragraph 8(5), andAV is the aggregate of the values of the individual’s uncrystallised rights under the arrangement and the other arrangement or arrangements, calculated in accordance with paragraph 8(5).$

34

• (1) Sub-paragraphs (2) and (3) specify the modifications of the provisions of Schedule 29 relating to pension commencement lump sums that apply in accordance with paragraph 31(1) (entitlement to lump sums exceeding 25% of uncrystallised rights).

• (2) Schedule 29 has effect as if, in paragraph 1(1)(b) (pension commencement lump sum), the words “all or part of the member’s lump sum allowance is available, and” were omitted.

• (3) Subject to sub-paragraph (4), Schedule 29 has effect as if, for paragraph 2 (definition of “the permitted maximum”), there were substituted—

(2) (1) In paragraph 1 “the permitted maximum”, in relation to a lump sum, means— $$A×1.2+B$where—A is the value of the member’s uncrystallised lump sum rights under the pension scheme on 5th April 2006, calculated in accordance with paragraph 32 of Schedule 36;B is the additional lump sum amount (see sub-paragraphs (2) to (6) below).$ (2) In sub-paragraph (1), “the additional lump sum amount” means— $$C+D-E×F1,500,0004$where—C is the lump sum paid;D is the relevant capital amount in relation to the relevant pension (see sub-paragraph (6));E is the value of the member’s uncrystallised rights under the pension scheme on 5th April 2006, calculated in accordance with paragraph 33 of Schedule 36;F is the member’s lump sum and death benefit allowance.$ (3) For the purposes of sub-paragraph (2), any part of what would otherwise be C which represents rights attributable to a disqualifying pension credit is to be disregarded. (4) In a case in which the lump sum is paid in connection with the member becoming entitled to more than one relevant pension (within the meaning given by paragraph 1(3)), the reference in the definition of D in sub-paragraph (2) to the relevant capital amount in relation to the relevant pension is to the sum of the relevant capital amounts in relation to each of the relevant pensions. (5) If the amount given by the formula in sub-paragraph (2) is negative, the additional lump sum amount is nil. (6) In sub-paragraph (2) “the relevant capital amount” means— (a) in a case in which the relevant pension is income withdrawal, the scheme pension capital value, as determined under paragraph 2A(3) and (4); (b) in a case in which the relevant pension is a lifetime annuity, the annuity purchase price, as determined under paragraph 2B(3) and (4); (c) in a case in which the relevant pension is a scheme pension under a defined benefits arrangement or a collective money purchase scheme, the amount given by the formula— $B×C$ where B and C have the same meaning as they have for the purposes of paragraph 2C(2); (d) in a case in which the relevant pension is a scheme pension under a money purchase arrangement that is not a collective money purchase arrangement, the scheme pension purchase price, as determined under paragraph 2D(3) and (4).

.

• (4) If, in any case, the permitted maximum of a lump sum that is determined under paragraph 2 of Schedule 29 as modified by sub-paragraph (3) of this paragraph is lower than it would have been disregarding the modification, the modification is to be disregarded.

Winding-up lump sums paid by former approved superannuation funds

35

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Right to payment of lump sum death benefit

36

• (1) This paragraph applies to a member of a registered pension scheme if on 5th April 2006—

• (a) the pension scheme is within any of paragraphs (a) to (e) of paragraph 1(1),

• (b) the member has an actual (rather than a prospective) right to a pension under an arrangement under the pension scheme, and

• (c) under the arrangement a lump sum death benefit is payable if the member dies within the guarantee period.

• (2) The guarantee period is the period of five years beginning with the day on which the member became entitled to the pension or, if later, the day on which the pension was first paid.

• (3) If the member dies after having reached the age of 75 and before the end of the guarantee period—

• (a) paragraph 14 of Schedule 29 (pension protection lump sum death benefit), and

• (b) paragraph 16 of that Schedule (annuity protection lump sum death benefit), ...

• (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

apply in relation to the member and the arrangement with the following modifications.

• (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (5) Paragraph 14 (1) applies as if paragraph (d) were omitted.

• (6) Paragraph 14(2) applies as if the reference to the pension protection limit were to the transitional protection limit.

• (7) Paragraph 16(2) applies as if the reference to the annuity protection limit were to the transitional protection limit.

• (8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (9) Section 206 (1) (special lump sum death benefits charge) does not apply to any pension protection lump sum death benefit or annuity protection lump sum death benefit or unsecured pension fund lump sum death benefit paid by virtue of sub-paragraphs (3) to (7).

• (10) If the member dies before having reached the age of 75 and before the end of the guarantee period—

• (a) section 206 (1) does not apply to so much of any pension protection lump sum death benefit or annuity protection lump sum death benefit or unsecured pension fund lump sum death benefit paid under the arrangement as does not exceed the transitional protection limit, and

• (b) if the arrangement is a defined benefits arrangement, paragraph 14(1)(d) of Schedule 29 is to be treated as satisfied in relation to so much of the lump sum death benefit paid under the arrangement as does not exceed the transitional protection limit.

• (11) The transitional protection limit is—

$$P-TPLS$where—P is the amount of pension to which (had the member lived) the member would have been entitled under the arrangement in respect of the period beginning with the day of the member’s death and ending with the last day of the guarantee period, andTPLS is the amount of any pension protection lump sum death benefit or annuity protection lump sum death benefit previously paid in respect of the pension.$

Part 4 — Other provisions

Pre-commencement ill-health insurance contracts

37

• (1) Payments under protected ill-health insurance contracts are not unauthorised member payments.

• (2) Ill-health insurance contracts are contracts providing insurance against a risk relating to non-payment by a member of a pension scheme of contributions under the pension scheme.

• (3) An ill-health insurance contract is protected if it was made before 6th April 2006 under—

• (a) a personal pension scheme approved under Chapter 4 of Part 14 of ICTA before 6th April 2001, or

• (b) an annuity contract or trust scheme approved under section 620 or 621 of ICTA or a substituted contract within the meaning of section 622(3) of ICTA.

Pre-commencement loans to sponsoring employers

38

• (1) This paragraph applies to a loan if—

• (a) the loan was made before 6th April 2006 by an occupational pension scheme which becomes a registered pension scheme on that date,

• (b) had this Part had been in force and had the pension scheme been a registered pension scheme at the time when the loan was made, it would have been a loan to a sponsoring employer, and

• (c) the date by which the total amount owing (including interest) must be paid is on or after 6th April 2006.

• (2) If on or after 6th April 2006 there is no alteration in the repayment terms, section 179 (authorised employer loan) does not apply in relation to the loan.

• (3) If on or after 6th April 2006 there is an alteration in the repayment terms, section 179 applies as if, on the date of the alteration, the pension scheme made a loan to the sponsoring employer of an amount equal to the amount owing (including interest) on that date.

• (4) The postponement of the date by which the total amount owing (including interest) must be paid is not an alteration in the repayment terms if—

• (a) an amount is outstanding on the date by which the total amount owing should have been paid,

• (b) the postponement is for a period not exceeding five years, and

• (c) there has been no previous postponement on or after 6th April 2006.

Retirement annuity contracts: carry-back of pre-commencement contributions

39

The repeal by this Act of section 619(4) of ICTA (election on or before 31st January following tax year in which retirement annuity contract premium is paid to treat premium as paid in earlier tax year) does not prevent the making of an election under that provision (in relation to a premium paid in the tax year 2005-06) at any time on or before 31st January 2007.

Members' contributions to pre-commencement retirement annuity contracts

40

• (1) Relief in respect of contributions made by a member under pre-commencement retirement annuity arrangements is not required to be given in accordance with section 192 (relief at source).

• (2) If relief in respect of contributions made by a member under pre-commencement retirement annuity arrangements is not given in accordance with section 192, relief in respect of the contributions is to be given in accordance with section 194 (relief on making of claim).

• (3) “Pre-commencement retirement annuity arrangements” means—

• (a) an annuity contract or trust scheme approved under section 620 or 621 of ICTA, or

• (b) a substituted contract within the meaning of section 622(3) of ICTA.

Employers' contributions relieved before 6th April 2006

41

To the extent that any contribution paid by an employer under a registered pension scheme was—

• (a) allowed to be deducted for the purposes of Part 2 of ITTOIA 2005 (trading income) or Case I or II of Schedule D,

• (b) deductible under section 75 of ICTA (expenses of management: companies with investment business), or

• (c) brought into account at Step 1 in section 76(7) of ICTA (expenses of insurance companies),

for a period beginning before 6th April 2006, it is not allowed to be so deducted, so deductible, or available to be so brought into account for that or any other period in accordance with section 196 (relief for employers in respect of contributions paid).

Spreading of employer’s contributions

42

The power of the Board of Inland Revenue under section 592(6) of ICTA to direct that a sum paid under an exempt approved scheme otherwise than by way of ordinary annual contribution be treated as an expense to be spread over such period of years as the Board think fit continues to apply in relation to sums paid before 6th April 2006.

Taxation of annuities paid under pre-commencement retirement annuity contracts

43

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Taxation of pensions accruing (but not taxed) pre-commencement and paid or received post-commencement

44

• (1) If an amount which accrued but was not paid before 6th April 2006 would have constituted taxable pension income under Chapter 7 of Part 9 of ITEPA 2003 (former approved superannuation fund annuities) had it been paid before that date, it is to be treated for the purposes of Chapter 5A of Part 9 of ITEPA 2003 (as inserted by Schedule 31) as if it accrues when it is paid.

• (2) If an amount which accrued but was not received before 6th April 2006 would have constituted taxable pension income under section 596 of ITEPA 2003 (personal pension annuities) had it been received before that date, it is to be treated for the purposes of Chapter 5A of Part 9 of ITEPA 2003 (as inserted by Schedule 31) as if it accrues when it is received.

Pensions taxed pre-commencement but accruing post-commencement

45

• (1) If an amount which was paid but had not accrued before 6th April 2006 constituted taxable pension income under Chapter 7 of Part 9 of ITEPA 2003 (former approved superannuation fund annuities), it does not also constitute taxable pension income under Chapter 5A of Part 9 of ITEPA 2003 (as inserted by Schedule 31) when it accrues.

• (2) If an amount which was received but had not accrued before 6th April 2006 constituted taxable pension income under section 596 of ITEPA 2003 (personal pension annuities), it does not also constitute taxable pension income under Chapter 5A of Part 9 of ITEPA 2003 (as inserted by Schedule 31) when it accrues.

Application of PAYE to certain annuities in payment at commencement

46

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Authorised surplus payments charge: pre-19th March 1986 winding-up

47

Section 207 (authorised surplus payments charge) does not apply to any payment made in pursuance of the winding-up of a pension scheme if the winding-up commenced before 19th March 1986.

Annual allowance charge: post-commencement contributions to discharge pre-commencement unfunded promises

48

• (1) This paragraph applies where, during the period beginning with 6th April 2006 and ending with 7th July 2006, an employer of an individual makes a relevant consolidation contribution in respect of the individual under an arrangement under a registered pension scheme relating to the individual.

• (2) The pension input amount in respect of the arrangement during the pension input period of the arrangement ending in the tax year 2006-07 is to be reduced by the amount of the contribution.

• (3) “Relevant consolidation contribution” means a contribution made by way of discharge of any liability incurred by the employer before 6th April 2006 to pay any pension or lump sum to or in respect of the individual.

Annual allowance charge: enhanced protection

49

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Saving of sections 605 and 651A of ICTA

50

The repeal by this Act of sections 605 and 651A of ICTA (information powers) does not affect the operation of those sections, or regulations under them, in relation to times before 6th April 2006.

Individuals with pre-commencement entitlement to corresponding relief

51

• (1) This paragraph applies where the Board of Inland Revenue allow contributions made by an individual under a pension scheme as deductions under Chapter 2 of Part 5 of ITEPA 2003 for the tax year 2005-06 in accordance with section 355 of that Act (deductions for corresponding payments by non-domiciled employees with foreign employers).

• (2) Where the individual makes contributions under the pension scheme for any subsequent tax year, the Board of Inland Revenue may allow the contributions as deductions under Chapter 2 of Part 5 of that Act if, as well as the Board of Inland Revenue being satisfied that the conditions in section 355 of that Act are met, the scheme manager complies with any prescribed benefit crystallisation information requirements imposed on the scheme manager.

• (3) Schedule 34 (non-UK schemes: application of certain charges) applies in relation to the pension scheme and the individual as if allowing the contributions as deductions under Chapter 2 of Part 5 of ITEPA 2003 by virtue of sub-paragraph (2) were the giving of relief by virtue of Schedule 33 (overseas pension schemes: migrant member relief).

• (4) “Prescribed benefit crystallisation information requirements” means requirements imposed by or under regulations made by the Board of Inland Revenue to provide to the Inland Revenue any information relating to an event that is the individual becoming entitled to a benefit under a pension scheme.

• (5) The references in sub-paragraphs (2) and (3) to the pension scheme include a pension scheme (“a transferee pension scheme”) if there has been—

• (a) a block transfer from the pension scheme within sub-paragraph (1) (“the original pension scheme”) to the transferee pension scheme, or

• (b) a block transfer to the transferee pension scheme from a pension scheme that was a transferee pension scheme in relation to the original pension scheme by virtue of the previous application of paragraph (a) or the previous application (on one or more occasions) of this paragraph.

• (6) “Block transfer” has the same meaning as in paragraph 22(6), but treating the references there to the member as references to the individual.

Continuing operation of section 392 of ITEPA 2003

52

Section 392 of ITEPA 2003 (non-approved schemes: relief where no benefits are paid or payable) continues to have effect in relation to a sum charged to tax by virtue of section 386 of ITEPA 2003 or section 595 of ICTA (charges on payments to schemes) before 6th April 2006.

Benefits taxable under Chapter 2 of Part 6 of ITEPA 2003: contributions taxed pre-commencement

53

• (1) Paragraph 54 or 55 has effect where—

• (a) section 394 of ITEPA 2003 (charge on benefits from non-approved schemes) operates (or would otherwise operate) by reason of the provision of a lump sum under an employer-financed retirement benefits scheme on or after 6th April 2006, and

• (b) before that date an employer has paid any sum or sums, with a view to the provision of benefits under the scheme, in respect of which an employee is taxed.

• (2) For the purposes of sub-paragraph (1)(a) section 394 of ITEPA 2003 operates if—

• (a) an amount counts as employment income of an individual under that section, or

• (b) the person who is, or persons who are, the responsible person in relation to the scheme is or are chargeable to income tax under subsection (2) of that section.

• (3) For the purposes of sub-paragraph (1)(b) an employee is taxed in respect of a sum or sums if—

• (a) the employee is assessed to tax by virtue of section 595 (1) of ICTA (charges on payments) in respect of the sum or sums, or

• (b) the sum or sums counts or count as employment income of the employee under section 386 (1) of ITEPA 2003 (charges on payments).

• (4) It is to be assumed, unless the contrary is shown, that neither paragraph 54 nor paragraph 55 has effect.

54

• (1) This paragraph has effect if—

• (a) all of the income and gains accruing to the scheme are brought into charge to tax and the lump sum is provided to the employee, a relative of the employee, the personal representatives of the employee, an ex-spouse or former civil partner of the employee or any other individual designated by the employee, or

• (b) the scheme was entered into before 1st December 1993 and has not been varied on or after that date with a view to the provision of benefits under the scheme.

• (2) In a case where the employer has not paid any sum or sums with a view to the provision of benefits under the scheme since before 6th April 2006, section 394 of ITEPA 2003 (charge on benefits from non-approved schemes) does not apply in relation to the lump sum.

• (3) In a case where the employer has paid any sum or sums with a view to the provision of benefits under the scheme on or after 6th April 2006—

• (a) section 394 of ITEPA 2003 does not apply in relation to so much of the lump sum as does not exceed the appropriate fraction of the amount of the market value of the assets of the scheme on 5th April 2006 as increased under sub-paragraph (4), and

• (b) only any sum or sums paid by the employee after that date with a view to the provision of benefits under the scheme is or are to be taken into account under section 395 of ITEPA 2003 (general rules).

• (4) For the purposes of sub-paragraph (3)(a)—

• (a) “the appropriate fraction” of the amount of the market value of the assets of the scheme on 5th April 2006 is the same fraction as the fraction of the assets of the scheme to which the employee would have been entitled had the scheme been wound up on that date, and

• (b) the amount of the market value of the assets of the scheme on that date is to be increased by the percentage by which the retail prices index for the month in which the lump sum is provided is greater than that for April 2006.

• (5) In this paragraph—

• “ex-spouse”, in relation to an employee, means the other party to a marriage with the employee that has been dissolved or annulled, and

• “former civil partner”, in relation to an employee, means the other party to a civil partnership with the employee that has been dissolved or annulled,

• “relative”, in relation to an employee, means—the spouse or civil partner of the employee,the widow or widower or surviving civil partner of the employee,a child of the employee, ora dependant of the employee.

55

• (1) This paragraph has effect if paragraph 54 does not.

• (2) Section 394 of ITEPA 2003 (charge on benefits from non-approved schemes) does not apply in relation to so much of the lump sum as does not exceed the sum, or the aggregate of the sums, referred to in paragraph 53(1)(b).

• (3) And the reference in section 395 of that Act (general rules) to the amount of the lump sum is to the amount of the remainder of the lump sum.

Inheritance tax

56

• (1) This paragraph applies in relation to a fund or scheme—

• (a) which is not a registered pension scheme , a qualifying non-UK pension scheme or a superannuation fund to which section 615(3) of ICTA applies, but

• (b) to which section 151 of the Inheritance Tax Act 1984 (c. 51) (treatment of pension rights) applied immediately before 6th April 2006.

• (2) If no contributions are made under the fund or scheme on or after that date—

• (a) section 151 of the Inheritance Tax Act 1984 continues to apply to the fund or scheme on and after that date for all purposes of that Act, and

• (b) property which is part of or held for the purposes of the fund or scheme does not constitute relevant property for the purposes of Chapter 3 of Part 3 of that Act (settlements without interest in possession).

• (3) In any other case, paragraphs 57 and 58 apply to the fund or scheme on and after that date.

• (4) In this paragraph “qualifying non-UK pension scheme” has the same meaning as in the Inheritance Tax Act 1984 (see section 271A of that Act).

57

• (1) The percentage of the assets of the fund or scheme which at any time is the protected percentage of those assets does not at that time constitute relevant property for the purposes of Chapter 3 of Part 3 of the Inheritance Tax Act 1984 (settlements without interest in possession).

• (2) “The protected percentage” of the assets of the fund or scheme at a time is—

$$ACVV×100$where—V is the market value of the assets of the fund or scheme at that time, andACV is the adjusted commencement value, that is an amount equal to the market value of the assets of the fund or scheme on 5th April 2006, but subject to the adjustments provided by sub-paragraph (3).$

• (3) The adjustments are—

• (a) an increase by the percentage by which the retail prices index for the month of September immediately preceding the time in question is greater than that for April 2006, and

• (b) a reduction by the amount of any relevant payments made under the fund or scheme on or after 6th April 2006 and before that time.

• (4) “Relevant payments”are payments other than—

• (a) payments of costs or expenses, or

• (b) payments which are (or will be) income of any person for any of the purposes of income tax.

58

• (1) Section 151 of the Inheritance Tax Act 1984 (treatment of pension rights) continues to apply to so much of the assets of the fund or scheme at any time as does not exceed the amount that is the protected amount at that time.

• (2) But sub-paragraph (1) does not affect the operation of subsection (1)(d) of section 58 of that Act (because paragraph 57 makes provision about the extent to which the assets of the fund or scheme constitute relevant property within the meaning given by that section).

• (3) If inheritance tax has not previously been chargeable (otherwise than only because of this paragraph) by reference to the value of the assets of the fund or scheme on or after 6th April 2006, the protected amount is an amount equal to the amount of the market value of the assets of the fund or scheme on 5th April 2006, but subject to the adjustments provided by sub-paragraph (4).

• (4) The adjustments are—

• (a) an increase by the percentage by which the retail prices index for the month of September immediately preceding the time in question is greater than that for April 2006, and

• (b) a reduction by the amount of any relevant payments made under the fund or scheme on or after 6th April 2006 and before that time.

• (5) If inheritance tax would (apart from this paragraph) have previously been chargeable by reference to the value of the assets of the fund or scheme on one or more occasions on or after 6th April 2006, the protected amount is what it was immediately before the occasion, or (where there has been more than one) the last occasion, on which inheritance tax would have been so chargeable (“the relevant tax occasion”), but—

• (a) reduced by the value of the property on which inheritance tax would have been chargeable on the relevant tax occasion, and

• (b) subject to the adjustments provided by sub-paragraph (6).

• (6) The adjustments are —

• (a) an increase by the percentage by which the retail prices index for the month of September immediately preceding the time in question is greater than that for the month in which the relevant tax occasion fell, and

• (b) a reduction by the amount of any relevant payments made under the fund or scheme since the relevant tax occasion.

• (7) “Relevant payments”are payments other than—

• (a) payments of costs or expenses, or

• (b) payments which are (or will be) income of any person for any of the purposes of income tax.

SCHEDULE 37

Part 1 — Amendments of the Oil Taxation Act 1983 relating to allowable expenditure and disposal receipts

Introductory

1

The Oil Taxation Act 1983 (c. 56) is amended in accordance with the following provisions of this Part.

Expenditure incurred on long-term assets other than non-dedicated mobile assets

2

• (1) Section 3 (expenditure incurred on long-term assets other than non-dedicated mobile assets) is amended as follows.

• (2) In subsection (4) (whole of expenditure to be allowable, except as provided by the provisions there specified) for “section 4” substitute “ sections 3A and 4 ”.

Exclusion from s.3(4) of expenditure on assets giving rise to tax-exempt tariffing receipts

3

After section 3 insert—

(3A) (1) This section applies where— (a) expenditure incurred on or after 1st January 2004 falls within section 3 (1) above, but (b) some of the use (or expected use) of the asset in relation to which the expenditure was incurred is use in a way that gives rise to tax-exempt tariffing receipts (see section 6A(2) below). (2) In any such case, such part of the expenditure as it is just and reasonable to apportion to the use mentioned in subsection (1)(b) above shall be excluded from the expenditure which is allowable as mentioned in section 3(4) above.

.

Expenditure related to exempt gas: asset use giving rise to tax-exempt tariffing receipts

4

• (1) Section 4 (expenditure related to exempt gas and deballasting) is amended as follows.

• (2) After subsection (5) insert—

(6) But where— (a) expenditure would (apart from this subsection) fall within paragraph (a) of subsection (5) above, and (b) the asset has, at any time in the period of 6 years ending with the date on which the expenditure was incurred, been used in a way that gives rise to tax-exempt tariffing receipts, the expenditure shall not be regarded for the purposes of that subsection as expenditure incurred in enhancing the value of the asset with a view to the subsequent disposal of the asset, or of an interest in it, to the extent that the amount of the expenditure falls to be reduced in accordance with subsection (7) below. (7) The reduction is to be made by applying section 7A below in relation to the expenditure as it applies in relation to disposal receipts in respect of a disposal, but with the substitution— (a) for references to the disponor, of references to the person incurring the expenditure (“the relevant participator”), (b) for references to the amount or value (apart from that section) of any disposal receipts of the disponor in respect of the disposal, of references to the amount which would, apart from subsection (6) above, be the amount of the expenditure incurred by the relevant participator with a view to the subsequent disposal of the asset or of an interest in it, (c) for references to the interest disposed of, of references to the asset or interest whose subsequent disposal gives or is expected to give rise to disposal receipts, (d) for references to the date of the disposal, of references to the date on which the expenditure was incurred, and taking the reference in subsection (6)(b) of that section to a reduction made by virtue of that section as a reference to a reduction made by virtue of that section for the purposes of section 7(9) of this Act.

.

Disposal receipts from assets used in a way that gives rise to tax-exempt tariffing receipts

5

• (1) Section 7 (chargeable receipts from disposals) is amended as follows.

• (2) In subsection (4) (no account to be taken of disposal more than 2 years after cessation of use in connection with any oil field whatsoever or ceasing to give rise to tariff receipts)—

• (a) at the end of paragraph (b) insert

or (c) ceases to give rise to tax-exempt tariffing receipts of that participator,

; and

• (b) in the closing words, for “later” substitute “ latest ”.

• (3) After subsection (8) insert—

(9) In determining the amount or value of the disposal receipts of the participator in question in a case where the qualifying asset has been used in a way that gives rise to tax-exempt tariffing receipts, the amount or value (apart from this subsection) of any disposal receipts of his in respect of the disposal shall be reduced in accordance with section 7A below.

.

• (4) After section 7 insert—

(7A) (1) Where this section applies, the amount or value (apart from this section) of any disposal receipts of the participator (“the disponor”) in respect of the disposal shall be reduced in accordance with the following provisions of this section. (2) The reduction is to be made by multiplying that amount or value by the fraction that is equal to— $1-TA$ (3) In that formula— T is the aggregate of the tax-exempt tariffing use of the asset in the reference period by— (a) the disponor, so far as referable to the interest disposed of, and (b) each of the previous owners, so far as referable to that previous owner’s represented interest, and A is the aggregate of all use of the asset in the reference period by— (a) the disponor, so far as referable to the interest disposed of, and (b) each of the previous owners, so far as referable to that previous owner’s represented interest, but only taking into account for this purpose use of the asset by a person at a time when he is or was a participator in a taxable field. (4) For the purposes of this section— - “the interest disposed of” means the asset, or the interest in an asset, the disposal of which gives rise to the disposal receipts mentioned in subsection (1) above; - “previous owner” means any person from whom the disponor directly or indirectly derives his title to the whole or any part of the interest disposed of; - “the reference period” means the shorter of the following periods ending with the date of the disposal— 1. the period of 6 years; or 2. the period beginning with the bringing into existence of the asset; - “represented interest”, in the case of a previous owner, means so much of the interest which that previous owner had in the asset as is represented in the interest disposed of; - “tax-exempt tariffing use”, in relation to an asset, means use of the asset in a way that gives rise to tax-exempt tariffing receipts. (5) Any apportionment that falls to be made for the purpose of determining a previous owner’s represented interest shall be made using a method which is just and reasonable, having regard to— (a) the proportion of any person’s interest that was acquired from any particular person, and (b) the proportion of any person’s interest that was transferred to any particular person. (6) Where— (a) the disponor or any previous owner acquired the asset or an interest in the asset from another person, and (b) on that other person’s corresponding disposal of the asset or interest a reduction was made by virtue of this section, use of the asset shall not be brought into account in determining T or A in the formula in subsection (2) above to the extent that it was so brought into account in relation to that corresponding disposal. (7) Where paragraph 9 of Schedule 2 to this Act (reduction of disposal receipts in respect of brought-in assets) applies in relation to an asset, no account shall be taken for the purposes of this section of any use of the asset during the initial period. In this subsection “the initial period”, in relation to an asset, has the same meaning as it has in relation to that asset in paragraph 7 of Schedule 1 to this Act (restriction on allowable expenditure on brought-in asset). (8) For the purposes of this section, the amount of use of an asset— (a) where the use is in relation to oil, is to be determined by reference to the volume of oil in relation to which the asset is used, and (b) where the use is otherwise than in relation to oil, is to be determined on a just and reasonable basis. (9) For the purposes of this section, the extent to which use of an asset is referable to— (a) the interest disposed of, or (b) the represented interest of a previous owner, shall be determined on a just and reasonable basis, having regard to the size of the interest in question and the size from time to time of the whole interest in the asset of the disponor or, as the case may be, that previous owner.

.

Assets no longer in use for the principal field

6

• (1) In Schedule 1 (allowable expenditure) in Part 1 (extensions of allowable expenditure for assets generating receipts) paragraph 3 is amended as follows.

• (2) After sub-paragraph (2) insert—

(2A) But where— (a) the expenditure would (apart from this sub-paragraph) be regarded as incurred with a view to the subsequent disposal of the asset or of an interest in it, and (b) the asset has, at any time in the period of 6 years ending with the date on which the expenditure was incurred, been used in a way that gives rise to tax-exempt tariffing receipts, the expenditure shall not be regarded for the purposes of this paragraph as expenditure incurred with a view to the subsequent disposal of the asset or of an interest in it, to the extent that the amount of the expenditure falls to be reduced in accordance with sub-paragraph (2B) below. (2B) The reduction is to be made by applying section 7A of this Act in relation to the expenditure as it applies in relation to disposal receipts in respect of a disposal, but with the substitution— (a) for references to the disponor, of references to the participator incurring the expenditure (“the relevant participator”), (b) for references to the amount or value (apart from that section) of any disposal receipts of the disponor in respect of the disposal, of references to the amount which would, apart from sub-paragraph (2A) above, be the amount of the expenditure incurred by the relevant participator with a view to the subsequent disposal of the asset or of an interest in it, (c) for references to the interest disposed of, of references to the asset or interest whose subsequent disposal gives or is expected to give rise to disposal receipts, (d) for references to the date of the disposal, of references to the date on which the expenditure was incurred, and taking the reference in subsection (6)(b) of that section to a reduction made by virtue of that section as a reference to a reduction made by virtue of that section for the purposes of section 7(9) of this Act.

.

Brought-in assets

7

• (1) In Part 2 of Schedule 1, paragraph 7 is amended as follows.

• (2) In sub-paragraph (1)(c) (use of asset otherwise than in connection with a taxable field between acquisition etc and first use in connection with oil field)—

• (a) after “was used” insert “ (i) ”;

• (b) after “otherwise than in connection with a taxable field,” insert “ or ”;

• (c) after the word “or” so inserted, insert the following sub-paragraph—

(ii) in connection with a taxable field in a way that gives rise to tax-exempt tariffing receipts,

.

Subsequent use of new asset otherwise than in connection with a taxable field

8

• (1) In Part 2 of Schedule 1, paragraph 8 is amended as follows.

• (2) In sub-paragraph (3) (asset giving rise to tariff receipts attributable to taxable field treated as used in connection with a taxable field)—

• (a) after “gives rise to” insert “ (a) ”;

• (b) after “attributable to a taxable field,” insert “ or ”;

• (c) after the word “or” so inserted, insert the following paragraph—

(b) tax-exempt tariffing receipts which, if they were tariff receipts (and expenditure were or had been allowable accordingly), would be tariff receipts of the purchaser attributable to a taxable field,

.

• (3) In sub-paragraph (5) (chargeable period to be determined in relation to field in respect of which asset last gave rise to tariff receipts of purchaser etc) at the end of paragraph (b) insert

or (c) if it is later than paragraph (a) and (where otherwise applicable) paragraph (b) above, in respect of which the asset would have last given rise to tariff receipts of the purchaser had tax-exempt tariffing receipts of the purchaser been tariff receipts of his (and if expenditure were or had been allowable accordingly);

.

Part 2 — Transitional provision

Expenditure incurred in transitional period: restriction of tax-exempt tariffing receipts

9

• (1) In this paragraph—

• “claim period” has the same meaning as in Part 1 of the Oil Taxation Act 1975 (c. 22);

• “relevant receipts” means each of the following—tax-exempt tariffing receipts;amounts that would be tax-exempt tariffing receipts apart from sub-paragraph (4);

• “the transitional period” means the period—beginning with 9th April 2003, andending with 31st December 2003.

• (2) This paragraph applies where—

• (a) expenditure was incurred in the transitional period by a participator in an oil field in acquiring, bringing into existence or enhancing the value of an asset,

• (b) the asset is one whose useful life continues, or is expected to continue, after the end of the claim period in which the expenditure was incurred,

• (c) the expenditure is allowable for a claim period ending after 9th April 2003,

• (d) at the time the expenditure was incurred, the asset was being, or was expected to be, used to any extent in relation to—

• (i) an oil field or foreign field (a “user field”), or

• (ii) oil won from such a field, and

• (e) that use (or expected use) is use in such a way as, in a chargeable period ending on or after 30th June 2004, gives rise, or would have given rise, to relevant receipts of the participator or, where sub-paragraph (3) applies, of a successor.

• (3) This sub-paragraph applies where—

• (a) after the incurring of the expenditure, there is or has been a transfer of an interest of the participator’s in the asset, and

• (b) as a result of that transfer (or of any subsequent transfer of the whole or any part of that interest), relevant receipts (“consequential relevant receipts”) arise, or are expected to arise, to a person (a “successor”) who is a participator in an oil field.

• (4) In the case of each user field, the initial portion of the aggregate of the relevant receipts of the participator, and the consequential relevant receipts of each successor, that are referable to—

• (a) use of the asset in relation to that field or oil won from it, or

• (b) the provision of services or other business facilities of whatever kind in connection with any such use of the asset (otherwise than by the participator or the successor himself),

shall not be tax-exempt tariffing receipts (and shall accordingly continue to be tariff receipts).

• (5) In this paragraph—

• “the initial portion”, in relation to the aggregate of any relevant receipts, means so much of that aggregate as does not exceed the qualifying threshold for the user field in question; and for this purpose amounts received or receivable at an earlier date are to be attributed to the initial portion before amounts received or receivable at a later date;

• “the qualifying threshold”, in relation to a user field, means an amount equal to such part of the aggregate of the expenditure—incurred by the participator in relation to the asset in question, andfalling within sub-paragraph (2),as it is just and reasonable to apportion to the use (or expected use) of the asset, in relation to that user field or oil won from it, in a way that gives rise to relevant receipts of the participator or consequential relevant receipts of any successor.

• (6) Expressions used in this paragraph and in section 6A of the Oil Taxation Act 1983 (c. 56) have the same meaning in this paragraph as they have in that section.

Part 3 — Amendments of the Taxes Act 1988

Introductory

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Section 496: treatment of tax-exempt tariffing receipts for income and corporation tax

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