Part 4U.K.Pension schemes etc

Chapter 4U.K.Registered pension schemes: tax reliefs and exemptions

Members' contributionsU.K.

188Relief for contributionsU.K.

(1)An individual who is an active member of a registered pension scheme is entitled to relief under this section in respect of relievable pension contributions paid during a tax year if the individual is a relevant UK individual for that year.

(2)In this Part “relievable pension contributions”, in relation to an individual and a pension scheme, means contributions by or on behalf of the individual under the pension scheme other than contributions to which subsection (3) applies.

(3)This subsection applies to—

(a)any contributions paid after the individual has reached the age of 75,

[F1(aa)any contributions which are life assurance premium contributions (see section 195A),]

(b)any contributions paid by an employer of the individual (as to which see sections 196 to 201), and

(c)any amounts paid by the Board of Inland Revenue under section 42A(3) or 43 of the Pension Schemes Act 1993 (c. 48) or section 38A(3) or 39 of the Pension Schemes (Northern Ireland) Act 1993 (c. 49) (rebates and minimum contributions).

(4)For the purposes of this Part a pension credit which increases the rights of the individual under the pension scheme is only to be treated as a contribution on behalf of the individual if it derives from a pension scheme that is not a registered pension scheme.

(5)For the purposes of this Part—

(a)any other transfer of any sum held for the purposes of, or representing accrued rights under, a pension scheme so as to become held for the purposes of, or to represent rights under, another pension scheme, F2...

F2(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

is not to be treated as a contribution.

F3(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7)References in the Income Tax Acts to relief in respect of life assurance premiums do not include relief under this section.

(8)The following sections make further provision about relief under this section—

• section 189 (relevant UK individual),

• section 190 (annual limit for relief),

• sections 191 to 194 (methods of giving relief), and

• section 195 (transfer of certain shares to be treated as payment of contribution).

189Relevant UK individualU.K.

(1)For the purposes of this Part an individual is a relevant UK individual for a tax year if—

(a)the individual has relevant UK earnings chargeable to income tax for that year,

(b)the individual is resident in the United Kingdom at some time during that year,

(c)the individual was resident in the United Kingdom both at some time during the five tax years immediately before that year and when the individual became a member of the pension scheme, or

(d)the individual, or the individual’s spouse [F4or civil partner], has for the tax year general earnings from overseas Crown employment subject to UK tax.

(2)In this Part “relevant UK earnings” means—

(a)employment income,

(b)income which is chargeable under [F5Part 2 of ITTOIA 2005] and is immediately derived from the carrying on or exercise of a trade, profession or vocation (whether individually or as a partner acting personally in a partnership), F6...

[F7(ba)income which is chargeable under Part 3 of ITTOIA 2005 and is immediately derived from the carrying on of a UK furnished holiday lettings business (whether individually or as a partner acting personally in a partnership), F8...]

[F9(bb)income which is chargeable under Part 3 of ITTOIA 2005 and is immediately derived from the carrying on of an EEA furnished holiday lettings business (whether individually or as a partner acting personally in a partnership), and]

[F10(c)income to which subsection (2A) applies.]

[F11(2A)This subsection applies to income if—

(a)it is patent income, and

(b)the individual, alone or jointly, devised the invention for which the patent in question was granted.]

(3)For the purposes of this section and section 190 relevant UK earnings are to be treated as not being chargeable to income tax if, in accordance with arrangements having effect by [F12under section 2(1) of the Taxation (International and Other Provisions) Act 2010] (double taxation agreements), they are not taxable in the United Kingdom.

(4)“General earnings from overseas Crown employment subject to UK tax” has the meaning given by section 28 of ITEPA 2003.

[F13(5)“UK furnished holiday lettings business” means a UK property business so far as consisting of the commercial letting of furnished holiday accommodation (within the meaning of Chapter 6 of Part 3 of ITTOIA 2005).

(6)If there is a letting of accommodation only part of which is holiday accommodation, just and reasonable apportionments are to be made for the purpose of determining what is comprised in a UK furnished holiday lettings business.

[F14(6A)EEA furnished holiday lettings business” means an overseas property business so far as consisting of the commercial letting of furnished holiday accommodation (within the meaning of Chapter 6 of Part 3 of ITTOIA 2005) in one or more EEA states.

(6B)If there is a letting of accommodation only part of which is holiday accommodation, just and reasonable apportionments are to be made for the purpose of determining what is comprised in an EEA furnished holiday lettings business.]

(7)“Patent income” means—

(a)royalties or other sums paid in respect of the use of a patent charged to tax under section 579 of ITTOIA 2005,

(b)amounts on which tax is payable under section 587 or 593 of ITTOIA 2005, or

(c)amounts on which tax is payable under—

(i)section 472(5) of the Capital Allowances Act, or

(ii)paragraph 100 of Schedule 3 to that Act.]

190Annual limit for reliefU.K.

(1)The maximum amount of relief to which an individual is entitled under section 188 (relief for contributions) for a tax year is (subject as follows) the amount of the individual’s relevant UK earnings which are chargeable to income tax for the tax year.

(2)If the amount of the individual’s relevant UK earnings which are chargeable to income tax for the tax year is less than the basic amount, the maximum amount of relief to which the individual is entitled under section 188 for the tax year is increased by the difference between—

(a)the amount of the individual’s relevant UK earnings which are so chargeable, and

(b)the basic amount,

(so that, if the individual has no relevant UK earnings which are so chargeable, the maximum amount of such relief is the basic amount).

(3)Subsection (2) is subject to section 191(7) (limit on methods of giving relief to which individual is entitled by virtue of subsection (2)).

(4)“The basic amount” is £3,600 or such greater amount as the Treasury may by order specify.

F15(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

191Methods of giving reliefU.K.

(1)Relief to which an individual is entitled under section 188 (relief for contributions) in respect of contributions is to be given as provided by this section.

(2)Subject as follows, the relief is to be given in accordance with section 192 (relief at source).

(3)Subject to subsection (7), relief in respect of contributions under a pension scheme made by a member of the pension scheme may (instead of being given in accordance with section 192) be given in accordance with section 193 (relief under net pay arrangements) if—

(a)the pension scheme is an occupational pension scheme,

(b)the member is an employee of a sponsoring employer, and

(c)relief in respect of contributions made under the pension scheme by all of the other members of the pension scheme who are employees of the sponsoring employer is given in accordance with that section.

(4)Subject to subsection (7), relief in respect of contributions under a pension scheme made by a member of the pension scheme may (instead of being given in accordance with section 192) be given in accordance with section 193 if—

(a)the pension scheme is a public service pension scheme or marine pilots' benefits fund, and

(b)the member is an employee.

(5)Subject to subsection (7), subsection (6) applies where—

(a)contributions are made under a public service pension scheme or marine pilots' benefit fund by a member who is not an employee, or

(b)contributions are made otherwise than by a member of the pension scheme under a net pay pension scheme.

(6)Relief in respect of the contributions—

(a)may (but need not) be given in accordance with section 192, but

(b)where not so given, is to be given in accordance with section 194 (relief on making of claim).

(7)Relief to which an individual is entitled by virtue of section 190(2)—

(a)may only be given in accordance with section 192, and

(b)is not required to be given in respect of contributions under a net pay pension scheme.

(8)In this section “marine pilots' benefits fund” means—

(a)a fund established under section 15(1)(i) of the Pilotage Act 1983 (c. 21), or

(b)any scheme supplementing or replacing such a fund.

(9)In this Part “net pay pension scheme” means a pension scheme in the case of which some or all of the members of the pension scheme are entitled to be given relief in accordance with section 193 in respect of the payment of contributions by them under the pension scheme.

(10)Schedule 36 contains (in Part 4) transitional provision about relief in respect of contributions to pre-commencement retirement annuity contracts.

192Relief at sourceU.K.

(1)Where an individual is entitled to be given relief in accordance with this section in respect of the payment of a contribution under a pension scheme, the individual or other person by whom the contribution is paid is entitled, on making the payment, to deduct and retain out of it a sum equal to income tax on the contribution at the basic rate for the tax year in which the payment is made.

(2)If a sum is deducted from the payment of the contribution—

(a)the scheme administrator must allow the deduction on receipt of the residue,

(b)the individual or other person is acquitted and discharged of so much money as is represented by the deduction as if the sum had actually been paid, and

(c)the sum deducted is to be treated as income tax paid by the scheme administrator.

(3)When the payment of the contribution is received—

(a)the scheme administrator is entitled to recover from the Board of Inland Revenue the amount which is treated as income tax paid by the scheme administrator in relation to the contribution, and

(b)any amount so recovered is to be treated for the purposes of the Tax Acts in the same manner as the payment of the contribution.

[F16(4)If (apart from this section) income tax at the higher rate or the additional rate is chargeable in respect of any part of the individual's total income for the tax year, on the making of a claim the basic rate limit and the higher rate limit for the tax year in the individual's case are increased by the amount of the contribution.]

F17(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6)Subsections (1) and (2) have effect subject to such conditions as the Board of Inland Revenue may prescribe by regulations.

(7)The Board of Inland Revenue may by regulations make provision for carrying subsections (1) to (3) into effect, in particular by making provision—

(a)about how a sum is to be recovered under subsection (3)(a) (including the manner in which a claim for the recovery of a sum is to be made),

(b)for the giving of such information, in such form, as may be prescribed by or under the regulations,

(c)for the inspection of documents by persons authorised by the Board of Inland Revenue, and

(d)specifying the consequences of failure to comply with conditions prescribed by virtue of subsection (6).

(8)Regulations under this section may, in particular—

(a)modify the operation of any provision of the Tax Acts, or

(b)provide for the application of any provision of the Tax Acts (with or without modification).

(9)Where, after relief is given to an individual in accordance with this section for a tax year, an assessment, alteration of an assessment or other adjustment of the individual’s liability to tax is made, any appropriate consequential adjustments are to be made in relief given to the individual in accordance with this section.

(10)Where relief is given to an individual in accordance with this section for a tax year in respect of a contribution, relief is not to be given—

(a)in respect of the contribution under any other provision of the Income Tax Acts, or

(b)(in the case of a contribution under an annuity contract) in respect of any other premium or consideration for an annuity under the same contract.

193Relief under net pay arrangementsU.K.

(1)This section applies where an individual is entitled to be given relief in accordance with this section in respect of the payment of a contribution under a pension scheme.

(2)The amount of the contribution is to be allowed to be deducted by the sponsoring employer from the employment income from the individual’s employment with the employer for the tax year in which the payment is made.

(3)A deduction may be made only once in respect of the same contribution.

(4)A claim for excess relief may be made if—

(a)the amount of the contributions paid by an individual under one or more relevant net pay pension schemes in a tax year exceeds the employment income from the individual’s employment or employments with the sponsoring employer or employers for the tax year, or

(b)it is not possible for the sponsoring employer or employers for any other reason to deduct the whole amount of the contribution from the individual’s employment income.

(5)A net pay pension scheme is a relevant net pay pension scheme if the members of the pension scheme entitled to be given relief in accordance with this section in respect of the payment of contributions by them under the pension scheme include the individual.

(6)On the making of the claim for excess relief the amount of the excess may be deducted [F18in calculating the net income] of the individual for the tax year [F19(see Step 2 of the calculation in section 23 of ITA 2007)].

(7)Where, after relief is given to an individual in accordance with this section for a tax year, an assessment, alteration of an assessment or other adjustment of the individual’s liability to tax is made, any appropriate consequential adjustments are to be made in relief given to the individual in accordance with this section.

(8)Where relief is given to an individual in accordance with this section for a tax year in respect of a contribution, relief is not to be given in respect of it under any other provision of the Income Tax Acts.

194Relief on making of claimU.K.

(1)Where an individual is entitled to be given relief in accordance with this section in respect of the payment of a contribution, on the making of a claim the amount of the contribution may be deducted [F20in calculating the net income] of the individual for the tax year in which the payment is made [F21(see Step 2 of the calculation in section 23 of ITA 2007)].

(2)Where, after relief is given to an individual in accordance with this section for a tax year, an assessment, alteration of an assessment or other adjustment of the individual’s liability to tax is made, any appropriate consequential adjustments are to be made in relief given to the individual in accordance with this section.

(3)Where relief is given to an individual in accordance with this section for a tax year in respect of a contribution, relief is not to be given—

(a)in respect of the contribution under any other provision of the Income Tax Acts, or

(b)(in the case of a contribution under an annuity contract) in respect of any other premium or consideration for an annuity under the same contract.

195Transfer of certain shares to be treated as payment of contributionU.K.

(1)For the purposes of sections 188 to 194 (relief for contributions) references to contributions paid by an individual include contributions made in the form of the transfer by the individual of eligible shares in a company within the permitted period.

(2)For the purposes of those sections the amount of a contribution made by way of a transfer of shares is the market value of the shares at the date of the transfer.

(3)“Eligible shares”, in relation to a contribution made by an individual, means shares—

(a)which the individual has exercised a right to acquire in accordance with the provisions of an SAYE option scheme, or

(b)which have been appropriated to the individual in accordance with the provisions of a share incentive plan.

(4)“The permitted period”—

(a)in relation to shares which the individual has exercised a right to acquire in accordance with the provisions of an SAYE option scheme, is the period of 90 days following the exercise of that right, and

(b)in relation to shares which have been appropriated to the individual in accordance with the provisions of a share incentive plan, is the period of 90 days following the date when the individual directed the trustees of the share incentive plan to transfer the ownership of the shares to the individual.

(5)In this section—

• “SAYE option scheme” has the same meaning as in the SAYE code (see section 516 of ITEPA 2003 (approved SAYE option schemes)), and

• “share incentive plan” has the same meaning as in the SIP code (see section 488 of ITEPA 2003 (approved share incentive plans)).

[F22195ALife assurance premium contributionsU.K.

(1)Contributions paid by or on behalf of an individual under a registered pension scheme are life assurance premium contributions for the purposes of section 188(3)(aa) if—

(a)rights under a non-group life policy (see subsection (2)) are (or later become) held for the purposes of the pension scheme, and

(b)the contributions are treated by this section as paid in respect of premiums under the non-group life policy (see subsections (3) to (5)).

(2)For the purposes of this section a “non-group life policy” is a policy of insurance under which the only benefits which may become payable are benefits payable in consequence, or in anticipation, of—

(a)the death of the individual or one of a group of individuals which includes the individual, or

(b)the deaths of more than one of a group of individuals—

(i)which includes the individual, and

(ii)the other members of which are connected with the individual.

(3)Contributions paid by or on behalf of the individual under the pension scheme are treated as paid in respect of premiums under the non-group life policy if—

(a)the payment of the contributions constitutes the payment of premiums under the policy, or

(b)the person by whom the contributions are paid intends the contributions (or an amount equivalent to them) to be applied towards paying premiums under the policy.

(4)Where the amount of the premiums under the policy in a tax year exceeds the amount of any contributions treated as paid in respect of the premiums by subsection (3), other contributions paid by or on behalf of the individual under the pension scheme in the tax year are treated as paid in respect of premiums under the policy to the extent that their amount does not exceed the difference between the amount of the premiums and the amount of any contributions treated as paid in respect of the premiums by subsection (3).

(5)But where—

(a)the benefits under the policy relate to the death of one or more of a group of individuals, and

(b)contributions are also paid under the pension scheme in the tax year by or on behalf of another member or other members of the group,

the amount of the contributions paid by or on behalf of the individual which are treated as paid in respect of premiums under the policy by subsection (4) does not exceed what is just and reasonable having regard to the operation of section 188(3)(aa) in relation to the contributions paid by or on behalf of another member or other members of the group.

(6)The Commissioners for Her Majesty's Revenue and Customs may by regulations amend subsections (2) to (5).

(7)Regulations under subsection (6) which limit—

(a)the policies of insurance which are non-group life assurance policies for the purposes of this section, or

(b)the contributions which are treated by this section as paid in respect of premiums under such policies,

may be made so as to have effect in relation to times before they are made.

(8)For the purposes of this section an individual (“A”) is connected with another individual (“B”) if—

(a)A is B's spouse or civil partner,

(b)A is a relative of B,

(c)A is the spouse or civil partner of a relative of B,

(d)A is a relative of B's spouse or civil partner, or

(e)A is the spouse or civil partner of a relative of B's spouse or civil partner;

and for the purposes of this subsection “relative” means brother, sister, ancestor or lineal descendant.]