Finance Act 2004

Annual allowance chargeU.K.

227Annual allowance chargeU.K.

(1)A charge to income tax, to be known as the annual allowance charge, arises [F1where an individual who is a member of one or more registered pension schemes has a chargeable amount for a tax year.]

[F2(1A)The chargeable amount (if any) is to be determined in accordance with section 227ZA.]

F3(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F3(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4)The annual allowance charge is a charge at the [F4appropriate rate] in respect of [F5the chargeable amount.]

F6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F7(4A)The appropriate rate is—

(a)the basic rate in relation to so much (if any) of the [F8chargeable amount] as, when added to the individual's reduced net income for the tax year, does not exceed the basic rate limit for the tax year,

(b)the higher rate in relation to so much (if any) of the [F8chargeable amount] as, when so added, exceeds the basic rate limit for the tax year but does not exceed the higher rate limit for the tax year, and

(c)the additional rate in relation to so much (if any) of the [F8chargeable amount] as, when so added, exceeds the higher rate limit for the tax year.

(4B)The individual's reduced net income for the tax year is the amount after taking Step 3 in section 23 of ITA 2007 in the case of the individual for the tax year.

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

(5)[F9The chargeable amount] is not to be treated as income for any purpose of the Tax Acts.

F10(5A). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F10(5B). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6)The following sections make further provision about the annual allowance charge—

• [F11sections 227ZA and 227B (chargeable amount),]

• [F11sections 227C to 227G (supplemental provision for calculations under section 227B),]

• section 228 (annual allowance),

• section [F12229(1)] (total pension input amount to be aggregate of pension input amounts for pension input periods ending in tax year),

• [F13section 229(2) to (4) (how to arrive at the pension input amount in respect of an arrangement),]

• sections 230 to 237 (pension input amounts),

• [F14sections 237A to 237F (persons liable to charge),] and

• section 238 (pension input period).

(7)Schedule 36 contains (in Part 4) transitional provision about the annual allowance charge.

[F15227ZAThe chargeable amountU.K.

(1)The chargeable amount is the alternative chargeable amount (see section 227B) if—

(a)the year is—

(i)the tax year in which the individual first flexibly accesses pension rights (see section 227G), or

(ii)a tax year later than that tax year,

(b)the money-purchase input sub-total (see section 227C) exceeds £10,000, and

(c)the alternative chargeable amount exceeds the default chargeable amount.

(2)Otherwise, the chargeable amount is the default chargeable amount.

(3)The default chargeable amount is the amount (if any) by which—

(a)the total pension input amount calculated in accordance with section 229(1), exceeds

(b)the annual allowance for the year in the case of the individual (see sections 228(1) and 228A).]

F16227AIndividuals who meet flexible drawdown conditionsU.K.

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

[F17227BThe alternative chargeable amountU.K.

(1)The alternative chargeable amount is the total of—

(a)the amount (if any) by which the defined-benefit input sub-total exceeds the alternative annual allowance, and

(b)the amount by which the money-purchase input sub-total exceeds £10,000.

(2)The alternative annual allowance is—

(3)The defined-benefit input sub-total is the total of—

(a)the pension input amounts in respect of each defined benefits arrangement relating to the individual under a registered pension scheme of which the individual is a member (see section 229(2)(c)),

(b)the pension input amounts in respect of each hybrid arrangement—

(i)relating to the individual under a registered pension scheme of which the individual is a member, and

(ii)in respect of which the pension input amount is input amount C mentioned in section 237, and

(c)any amounts required to be included by section 227E(3) or 227F(4) or (6) (pension input periods that end in the year but before the day on which rights are first flexibly accessed or that end in the year and contain that day).

(4)Subsection (3)(b) is subject to section 227D (pension input amounts for certain hybrid arrangements).

(5)If, in the case of a hybrid arrangement, input amount C mentioned in section 237—

(a)is a relevant input amount for the purposes of section 237, and

(b)is equal to—

(i)input amount A or B mentioned in section 237 if that is the only other relevant input amount for the purposes of section 237, or

(ii)the greater of input amounts A and B mentioned in section 237 if both are relevant input amounts for the purposes of section 237,

the pension input amount in respect of the arrangement is, for the purposes of subsection (3)(b) and sections 227C(1)(b) and 227D(1)(c), treated as being input amount A or B or, as the case may be, the greater of input amounts A and B (and, in either case, not input amount C).

227CMeaning of “money-purchase input sub-total”U.K.

(1)The money-purchase input sub-total is the total of—

(a)the pension input amounts in respect of each money purchase arrangement relating to the individual under a registered pension scheme of which the individual is a member (see section 229(2)(a) and (b)), and

(b)the pension input amounts in respect of each hybrid arrangement—

(i)relating to the individual under a registered pension scheme of which the individual is a member, and

(ii)in respect of which the pension input amount is input amount A or B mentioned in section 237.

(2)Subsection (1) is to be read with—

(a)section 227E(2) (pension input periods that end in the tax year but before the day on which rights are first flexibly accessed), and

(b)section 227F(2), (3) and (5) (pension input periods that end in the tax year and contain that day).

(3)Subsection (1)(b) is to be read with—

(a)section 227B(5) (hybrid arrangements where input amount C is highest-equal input amount), and

(b)section 227D (pension input amounts for certain hybrid arrangements).

227DPension input amounts in respect of certain hybrid arrangementsU.K.

(1)In this section “relevant hybrid arrangement” means a hybrid arrangement—

(a)relating to the individual under a registered pension scheme of which the individual is a member,

(b)made on or after 14 October 2014 or having become a hybrid arrangement (whether or not for the first time) on or after that day, and

(c)in respect of which the pension input amount is input amount C mentioned in section 237.

(2)As respects each relevant hybrid arrangement in the maximising set of relevant hybrid arrangements—

(a)the pension input amount in respect of the arrangement is for the purposes of sections 227B(3)(b) and 227C(1)(b) treated as being not input amount C mentioned in section 237 but, instead, the greater of such of input amounts A and B mentioned in section 237 as are, for the purposes of section 237, relevant input amounts in the case of the arrangement, and

(b)accordingly, the arrangement—

(i)is not to be included among the arrangements mentioned in section 227B(3)(b) whose pension input amounts are totalled under section 227B(3), but

(ii)is to be included among the arrangements mentioned in section 227C(1)(b) whose pension input amounts are totalled under section 227C(1).

(3)For the purposes of subsection (2)—

(a)the maximising set contains no relevant hybrid arrangements,

(b)a particular relevant hybrid arrangement makes up that set, or

(c)two or more particular relevant hybrid arrangements make up that set,

if the alternative chargeable amount with the maximising set so made up is not less than it would be with the maximising set made up in any other way.

(4)In particular, the maximising set may be identified by taking the following steps—

• Step 1 Identify all of the relevant hybrid arrangements.

• Step 2 Identify all of the different combinations of the arrangements identified at Step 1 (including the combination consisting of all of those arrangements, and the combination consisting of none of them, as well as every possible combination of each possible size in between).

• Step 3 For each combination identified at Step 2 calculate what the money-purchase input sub-total would be if each relevant hybrid arrangement in the combination were treated in accordance with the rules in paragraphs (a) and (b) of subsection (2).

• Step 4 If the result of each calculation at Step 3 is less than or equal to £10,000 the chargeable amount is the default chargeable amount.

• Step 5 If the amount calculated at Step 3 for a combination is greater than £10,000 then calculate in accordance with section 227B what the alternative chargeable amount would be if—

  (a)

  each relevant hybrid arrangement in the combination were treated in accordance with the rules in paragraphs (a) and (b) of subsection (2), and

  (b)

  for each relevant hybrid arrangement not in the combination, input amount C mentioned in section 237 were included in the total under section 227B(3).

• Step 6 Identify the highest (or higher) of the amounts calculated at Step 5. The maximising set is made up of each relevant hybrid arrangement in the combination concerned.

(5)Subsection (1)(c) is to be read with section 227B(5) (hybrid arrangements where input amount C is highest-equal input amount).

(6)A hybrid arrangement is not a relevant hybrid arrangement if section 227E(2) applies in the case of that arrangement.

227EPension input periods ending before rights are first flexibly accessedU.K.

(1)Subsections (2) and (3) apply if, for an arrangement mentioned in section 227C(1), the pension input period ending in the tax year is a period that ends before the individual first flexibly accesses pension rights.

(2)The pension input amount in respect of the arrangement is for the purposes of section 227C(1) treated as being nil.

(3)The (actual) pension input amount in respect of the arrangement (see section 229(2)(a), (b) or (d)) is required to be included in the defined-benefit input sub-total calculated under section 227B(3).

227FPension input periods in which rights are first flexibly accessedU.K.

(1)Subject to subsection (7), subsections (2) to (6) apply if, for an arrangement mentioned in section 227C(1), the pension input period ending in the tax year contains the day on which the individual first flexibly accesses pension rights (whether or not that day is in the tax year).

(2)If the arrangement is a cash balance arrangement, the pension input amount in respect of that arrangement is for the purposes of section 227C(1)(a) treated as being—

(3)If the arrangement is a money purchase arrangement other than a cash balance arrangement, the pension input amount in respect of that arrangement is for the purposes of section 227C(1)(a) treated as being the amount in respect of the arrangement that would be arrived at under section 233 for a pension input period—

(a)beginning with the day after that on which the individual first flexibly accesses pension rights, and

(b)ending at the end of the pension input period mentioned in subsection (1).

(4)If the arrangement is a money purchase arrangement, the amount (if any) by which—

(a)the (actual) pension input amount in respect of the arrangement (see section 229(2)(a) or (b)), exceeds

(b)the amount treated by subsection (2) or (3) as being the pension input amount in respect of the arrangement,

is required to be included in the defined-benefit input sub-total calculated under section 227B(3).

(5)If the arrangement is a hybrid arrangement—

(a)input amount A mentioned in section 237 is for the purposes of sections 227C(1)(b) and 227D(2) treated as being—

(b)input amount B mentioned in section 237 is for the purposes of sections 227C(1)(b) and 227D(2) treated as being the amount for the arrangement that would be arrived at under section 233 for a pension input period—

(i)beginning on the day after that on which the individual first flexibly accesses pension rights, and

(ii)ending at the end of the pension input period mentioned in subsection (1).

(6)If the arrangement is a hybrid arrangement, the amount (if any) by which—

(a)the (actual) pension input amount in respect of the arrangement (see section 229(2)(d)), exceeds

(b)the amount which, in accordance with subsection (5) and section 227D, is for the purposes of section 227C(1)(b) the pension input amount in respect of the arrangement,

is required to be included in the defined-benefit input sub-total calculated under section 227B(3).

(7)Subsections (2) to (6) do not apply if section 165(3A) applied in the individual's case to the arrangement, or any other arrangement, at any time before 6 April 2015.

227GWhen pension rights are first flexibly accessedU.K.

(1)References in sections 227B to 227F to when the individual first flexibly accesses pension rights are to the time, or the earlier or earliest of the times, given for that by the following subsections.

(2)If—

(a)the individual has a member's flexi-access drawdown fund in respect of an arrangement, and

(b)the fund came into being—

(i)as a result of sums or assets being designated on or after 6 April 2015 as available for the payment of drawdown pension, or

(ii)as a result of the operation of paragraph 8D(2) of Schedule 28,

the individual first flexibly accesses pension rights immediately before the first qualifying payment is made from the fund (see subsection (10)).

(3)If section 165(3A) applied in the individual's case to an arrangement at any time before 6 April 2015, the individual first flexibly accesses pension rights at the start of 6 April 2015.

(4)If—

(a)the individual has a member's drawdown pension fund in respect of an arrangement, and

(b)the sums and assets that make up the fund become newly-designated funds by the operation of paragraph 8B of Schedule 28,

the individual first flexibly accesses pension rights immediately before the first qualifying payment (see subsection (10)) is made from the individual's member's flexi-access drawdown fund in respect of the arrangement (whether that is the payment that triggers the operation of paragraph 8B of Schedule 28 or a subsequent payment).

(5)If—

(a)the individual has a member's drawdown pension fund in respect of an arrangement, and

(b)the sums and assets that make up the fund become newly-designated funds by the operation of paragraph 8C of Schedule 28,

the individual first flexibly accesses pension rights immediately before the first qualifying payment is made from the individual's member's flexi-access drawdown fund in respect of the arrangement (see subsection (10)).

(6)The individual first flexibly accesses pension rights immediately before the payment of the first uncrystallised funds pension lump sum paid to the individual.

(7)If the individual is entitled to payment of a lifetime annuity under a flexible annuity contract (see subsection (8)), the individual first flexibly accesses pension rights immediately before the first payment of the annuity is made.

(8)In subsection (7) “flexible annuity contract” means a contract for a lifetime annuity where—

(a)the annuity is within paragraph 3(1A) of Schedule 28, and

(b)the terms of the contract are such that there will or could be decreases in the amount of the annuity other than decreases from time to time allowed by regulations under paragraph 3(1)(d) of Schedule 28 (and any such regulations are to be treated as having effect for this purpose).

(9)If—

(a)the individual is entitled to payment of a scheme pension under a money purchase arrangement under a registered pension scheme,

(b)the individual became entitled to the scheme pension—

(i)on or after 6 April 2015, and

(ii)at a time when fewer than 11 other individuals were entitled to the present payment of a scheme pension, or dependants' scheme pension, under the registered pension scheme, and

(c)the scheme pension is not payable under an annuity contract treated under section 153(8) or (8A) as having become a registered pension scheme,

the individual first flexibly accesses pension rights immediately before the first payment of the scheme pension is made.

(10)In subsections (2), (4) and (5), a reference to a qualifying payment from a fund is a reference to—

(a)payment of income withdrawal from the fund, or

(b)payment of a short-term annuity purchased using sums or assets out of the fund,

but does not include payment at a time when the whole of the fund represents rights attributable to a disqualifying pension credit.

(11)In subsection (10) “disqualifying pension credit” is to be read in accordance with paragraph 2(3) and (4) of Schedule 29.]

[F18228Annual allowanceU.K.

[F19(1)The annual allowance for the tax year 2014-15 and, subject to subsection (2), each subsequent tax year is £40,000.]

(2)The Treasury may by order provide that the annual allowance for any tax year subsequent to the tax year [F202014-15] is such amount as is specified in the order.]

[F21228ACarry forward of unused annual allowanceU.K.

(1)This section applies if the individual has unused annual allowance available for the tax year (“the current tax year”).

(2)The annual allowance for the current tax year in the case of the individual is to be treated as increased by the amount of the unused annual allowance available for the current tax year.

(3)The individual has unused annual allowance available for the current tax year if—

(a)the amount of the annual allowance (before any increase under this section) for the immediately preceding tax year exceeded the total pension input amount in the case of the individual for that tax year, or

(b)the amount of the annual allowance (before any such increase) for either or both of the two tax years immediately preceding that immediately preceding tax year exceeded the total pension input amount in the case of the individual for the tax year concerned and the excess (or, where there is an excess for both of those tax years, the excess for both tax years) has not been used up,

or both.

(4)Subsection (3)—

(a)does not apply in relation to a tax year preceding the current tax year unless the individual was a member of a registered pension scheme at some time during that tax year, but

(b)subject to that, applies in relation to such a tax year even if the total pension input amount in the case of the individual for that tax year was nil (in which case the excess within paragraph (a) or (b) of that subsection is the whole amount of the annual allowance before any increase under this section).

(5)The amount of the unused annual allowance available for the current tax year is the aggregate of—

(a)any excess within subsection (3)(a), and

(b)so much of any excess within subsection (3)(b) as has not been used up.

(6)An amount of an excess within subsection (3)(b) for a tax year has been “used up” if—

(a)for a tax year falling between that tax year and the current tax year (an “intervening tax year”), the total pension input amount in the case of the individual exceeded the annual allowance (apart from any increase under this section), and

(b)the amount of the excess had effect by virtue of this section to reduce (or eliminate) the annual allowance charge for the intervening tax year in the case of the individual.

(7)In calculating for the purposes of subsection (6) the amount of which of the excesses for different tax years had effect to reduce or eliminate the annual allowance charge for an intervening tax year, an amount of the excess for an earlier tax year is to be taken to have done so before that for a later tax year.

[F22(8)If, for a tax year preceding the current tax year, the chargeable amount in the individual's case was the alternative chargeable amount—

(a)a reference in subsection (3)(a) or (b), (4)(b) or (6)(a) to the annual allowance for that preceding tax year is a reference to the alternative annual allowance for that preceding tax year (see section 227B(2)), and

(b)a reference in subsection (3)(a) or (b), (4)(b) or (6)(a) to the total pension input amount in the case of the individual for that preceding tax year is a reference to the defined-benefit input sub-total in the case of the individual for that preceding tax year (see section 227B(3) to (5)).

(9)Subsection (3) does not apply in relation to a tax year—

(a)preceding the current tax year, and

(b)ending not later than 5 April 2015,

if, at any time in that preceding tax year, section 165(3A) or 167(2A) applied to an arrangement relating to the individual.]]

229Total pension input amountU.K.

(1)The total pension input amount is arrived at by aggregating the pension input amounts in respect of each arrangement relating to the individual under a registered pension scheme of which the individual is a member.

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

(a)is the amount arrived at under sections 230 to 232 if it is a cash balance arrangement,

(b)is the amount arrived at under section 233 if it is any other sort of money purchase arrangement,

(c)is the amount arrived at under sections 234 to [F23236A] if it is a defined benefits arrangement, and

(d)is the amount arrived at under section 237 if it is a hybrid arrangement.

(3)But there is no pension input amount in respect of an arrangement if, before the end of the tax year, the individual—

[F24(a)satisfies the severe ill-health condition, or]

(b)has died.

[F25(4)For the purposes of subsection (3)(a) the individual satisfies the severe ill-health condition if the individual—

(a)becomes entitled to all the benefits to which the individual is entitled under the arrangement in consequence of the scheme administrator having received evidence from a registered medical practitioner that the individual is suffering from ill-health which makes the individual unlikely to be able (otherwise than to an insignificant extent) to undertake gainful work (in any capacity) before reaching pensionable age,

(b)becomes entitled to a serious ill-health lump sum under the arrangement, or

(c)is a member of the armed forces of the Crown who becomes entitled under the arrangement to a benefit on which no liability to income tax arises by virtue of section 641(1) of ITEPA 2003.]

230Cash balance arrangementsU.K.

(1)The pension input amount in respect of a cash balance arrangement is the amount of any increase in the value of the individual’s rights under the arrangement during the pension input period of the arrangement that ends in the tax year.

(2)There is an increase in the value of the individual’s rights under the arrangement during the pension input period if—

(a)the opening value of the individual’s rights under the arrangement, is exceeded by

(b)the closing value of the individual’s rights under the arrangement.

(3)The amount of the increase in the value of the individual’s rights under the arrangement during the pension input period is the amount of that excess.

(4)The opening value of the individual’s rights under the arrangement is the amount which would, on the valuation assumptions (see section 277), be available for the provision of benefits to or in respect of the individual under the arrangement if the individual became entitled to the benefits at the [F26end of the immediately preceding pension input period (or is nil if the pension input period is the first pension input period of the arrangement)].

(5)The closing value of the individual’s rights under the arrangement is the amount which would, on the valuation assumptions, be available for the provision of benefits to or in respect of the individual under the arrangement if the individual became entitled to the benefits at the end of the pension input period.

[F27(5A)If, during the pension input period, minimum payments are made under—

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

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

in relation to the individual in connection with the arrangement, their amount is to be subtracted from what would otherwise be the pension input amount in the case of the individual in respect of the arrangement.

(5B)The pension input amount in respect of the arrangement is nil if—

(a)the individual is a deferred member of the pension scheme under which it is an arrangement (or would be if it were the only arrangement under the pension scheme relating to the individual) throughout the pension input period or is (or would be) such a deferred member for part of the pension input period and a pensioner member for the rest of it, and

(b)the value of the relevant rights of the individual does not increase during the pension input period by more than the relevant percentage.

(5C)In this section—

• “guaranteed minimum pension” has the meaning given by—

  (a)

  section 8(2) of the Pension Schemes Act 1993, or

  (b)

  section 4(2) of the Pension Schemes (Northern Ireland) Act 1993;

• “predecessor arrangement”, in relation to an arrangement, means another arrangement (under the same or another registered pension scheme) from which some or all of the sums or assets held for the purposes of the arrangement directly or indirectly derive;

• “predecessor registered pension scheme”, in relation to a pension scheme, means another registered pension scheme from which some or all of the sums or assets held for the purposes of the arrangement under the pension scheme directly or indirectly derive;

• “the relevant percentage”—

  (a)

  where throughout the pension input period the arrangement (or a predecessor arrangement) includes provision for the value of the relevant rights of the individual to increase at an annual rate specified in the rules of the pension scheme (or a predecessor registered pension scheme) on 14 October 2010, that percentage, and

  (b)

  otherwise, the percentage by which the consumer prices index for a month falling within the pension input period and nominated by the scheme administrator is higher than it was for the same month in the previous period of 12 months (or nil per cent if it is not higher);

• “the relevant rights of the individual” means rights of the individual under the arrangement, other than any rights to a guaranteed minimum pension;

• “specified”, in relation to an annual rate, means specified as a percentage figure or as a percentage produced by movement in an index (or a combination of the two) but does not include a percentage produced by the exercise of a discretion by any person.]

(6)Section 231 (uprating of opening value) and section 232 (adjustments of closing value) supplement this section.

231Cash balance arrangements: uprating of opening valueU.K.

(1)This section applies for adjusting the opening value of the individual’s rights as calculated under section 230(4).

(2)The opening value is to be increased by the appropriate percentage.

[F28(3)The appropriate percentage is the percentage (if any) by which the consumer prices index for the September before the start of the tax year is higher than it was for the previous September.]

232Cash balance arrangements: adjustments of closing valueU.K.

(1)This section applies for adjusting the closing value of the individual’s rights under the arrangement as calculated under section 230(5).

(2)If, during the pension input period, the rights of the individual under the arrangement have been reduced by having become subject to a pension debit, the amount of [F29the reduction] is to be added.

(3)If, during the pension input period, the rights of the individual under the arrangement have been increased by the individual having become entitled to a pension credit deriving from the same or another registered pension scheme, the amount of [F30the increase] is to be subtracted.

(4)[F31If], during the pension input period, the rights of the individual under the arrangement have been reduced by [F32reason of a transfer relating to the individual of any sums or assets] held for the purposes of, or representing accrued rights under, the arrangement so as to become held for the purposes of, or to represent rights under, any F33... pension scheme that is—

(a)a registered pension scheme, or

(b)a qualifying recognised overseas pension scheme.

[F34the amount of the reduction is to be added.]

F35(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6)[F36If], during the pension input period, the rights of the individual under the arrangement have been increased by [F37reason of a transfer relating to the individual] of any sums or assets held for the purposes of, or representing accrued rights under, any pension scheme so as to become held for the purposes of, or to represent rights under, the arrangement[F38, the amount of the increase is to be subtracted.]

F39(7). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F40(8)If, during the pension input period, the rights of the individual under the arrangement have been reduced by any surrender made, or similar action taken, pursuant to an option available to the individual under the arrangement, the amount of the reduction is to be added.

(8A)If, during the pension input period—

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

(b)benefit crystallisation event 3 occurs in relation to the individual and the arrangement otherwise than by reason of a provision contained in, or made under, any enactment,

(c)benefit crystallisation event 6 occurs or, but for paragraph 15A of Schedule 32, would occur in relation to the individual and the arrangement by virtue of the individual becoming entitled to a pension commencement lump sum or a lifetime allowance excess lump sum, or

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

the relevant amount is to be added.

(8B)In subsection (8A) “the relevant amount” is—

(a)in the case of benefit crystallisation event 2, what the annual rate of the pension would be on the valuation assumptions,

(b)in the case of benefit crystallisation event 3, the increase in the annual rate of the pension,

(c)in the case of benefit crystallisation event 6, the amount of the lump sum, and

(d)in any other case, the amount of the reduction in the amount of the rights available for the provision of benefits to or in respect of the individual occurring by reason of the benefit crystallisation event or allocation.

(8C)If, during the pension input period, an adjustment to the individual's rights under the arrangement is made in consequence of the scheme administrator satisfying a liability under section 237B in respect of the individual, if and to the extent that the adjustment is reflected in the closing amount the amount of the adjustment is to be added to the closing amount.

(8D)But no amount is to be added under subsection (8C) by reason of an adjustment made in consequence of the scheme administrator satisfying a liability under section 237B in a case where subsection (6) of that section applied.]

F41(9). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

233Other money purchase arrangementsU.K.

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

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

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

during the pension input period of the arrangement that ends in the tax year.

F42(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

234Defined benefits arrangementsU.K.

(1)The pension input amount in respect of a defined benefits arrangement is the amount of any increase in the value of the individual’s rights under the arrangement during the pension input period of the arrangement that ends in the tax year.

(2)There is an increase in the value of the individual’s rights under the arrangement during the pension input period if—

(a)the opening value of the individual’s rights under the arrangement, is exceeded by

(b)the closing value of the individual’s rights under the arrangement.

(3)The amount of the increase in the value of the individual’s rights under the arrangement during the pension input period is the amount of that excess.

[F43(4) The opening value of the individual’s rights under the arrangement is—

[F46(5) The closing value of the individual’s rights under the arrangement is—

[F47(5A)If, during the pension input period, minimum payments are made under—

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

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

in relation to the individual in connection with the arrangement, their amount is to be subtracted from what would otherwise be the pension input amount in the case of the individual in respect of the arrangement.

(5B)The pension input amount in respect of the arrangement is nil if—

(a)the individual is a deferred member of the pension scheme under which it is an arrangement (or would be if it were the only arrangement under the pension scheme relating to the individual) throughout the pension input period or is (or would be) such a deferred member for part of the pension input period and a pensioner member for the rest of it, and

(b)the value of the relevant rights of the individual does not increase during the pension input period by more than the relevant percentage.

(5C)In this section—

• “guaranteed minimum pension” has the meaning given by—

  (a)

  section 8(2) of the Pension Schemes Act 1993, or

  (b)

  section 4(2) of the Pension Schemes (Northern Ireland) Act 1993;

• “predecessor arrangement”, in relation to an arrangement, means another arrangement (under the same or another registered pension scheme) from which some or all of the sums or assets held for the purposes of the arrangement directly or indirectly derive;

• “predecessor registered pension scheme”, in relation to a pension scheme, means another registered pension scheme from which some or all of the sums or assets held for the purposes of the arrangement under the pension scheme directly or indirectly derive;

• “the relevant percentage”—

  (a)

  where throughout the pension input period the arrangement (or a predecessor arrangement) includes provision for the value of the relevant rights of the individual to increase at an annual rate specified in the rules of the pension scheme (or a predecessor registered pension scheme) on 14 October 2010, that percentage, and

  (b)

  otherwise, the percentage by which the consumer prices index for a month falling within the pension input period and nominated by the scheme administrator is higher than it was for the same month in the previous period of 12 months (or nil per cent if it is not higher);

• “the relevant rights of the individual” means rights of the individual under the arrangement, other than any rights to a guaranteed minimum pension;

• “specified”, in relation to an annual rate, means specified as a percentage figure or as a percentage produced by movement in an index (or a combination of the two) but does not include a percentage produced by the exercise of a discretion by any person.]

(6)Section 235 (uprating of opening value)[F48, section 236 (adjustments of closing value) and section 236A (post-entitlement enhancements)] supplement this section.

235Defined benefits arrangements: uprating of opening valueU.K.

(1)This section applies for adjusting the opening value of the individual’s rights as calculated under section 234(4) F49....

(2)The opening value is to be increased by the appropriate percentage.

[F50(3)The appropriate percentage is the percentage (if any) by which the consumer prices index for the September before the start of the tax year is higher than it was for the previous September.]

236Defined benefits arrangements: adjustments of closing valueU.K.

(1)This section applies for adjusting [F51PE and LSE] under section 234(5).

(2)If, during the pension input period, the [F52annual rate of the pension, or the amount of the lump sum, to which the individual would be entitled under the arrangement has] been reduced by having become subject to a pension debit, the amount of [F53the reduction] is to be added [F54to PE or LSE].

(3)If, during the pension input period, the [F55annual rate of the pension, or the amount of the lump sum, to which the individual would be entitled under the arrangement has] been increased by the individual having become entitled to a pension credit deriving from the same or another registered pension scheme, the amount of [F56the increase] is to be subtracted [F57from PE or LSE].

[F58(4)If, during the pension input period, the annual rate of the pension, or the amount of the lump sum, to which the individual would be entitled under the arrangement has been reduced by reason of a transfer relating to the individual of any sums or assets held for the purposes of, or representing accrued rights under, the arrangement so as to become held for the purposes of, or to represent rights under, any pension scheme that is—

(a)a registered pension scheme, or

(b)a qualifying recognised overseas pension scheme,

the amount of the reduction is to be added to PE or LSE.

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

[F59(8)If, during the pension input period, the annual rate of the pension, or the amount of the lump sum, to which the individual would be entitled under the arrangement has been reduced by any surrender made in return for any other entitlement, any allocation made, or any similar action taken, pursuant to an option available to the individual under the arrangement, the amount of the reduction (to the extent that it is not reflected in an amount added under subsection (8A)) is to be added to PE or LSE.

(8A)If, during the pension input period—

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

(b)benefit crystallisation event 3 occurs in relation to the individual and the arrangement otherwise than by reason of a provision contained in, or made under, any enactment, or

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

the relevant amount is to be added to PE or LSE.

(8B)In subsection (8A) “the relevant amount” is—

(a)in the case of benefit crystallisation event 2, the annual rate of the pension to which the individual became entitled,

(b)in the case of benefit crystallisation event 3, the increase in the annual rate of the pension, and

(c)in the case of benefit crystallisation event 6, the amount of the lump sum.

(8C)If, during the pension input period, an adjustment to the annual rate of the pension, or the amount of the lump sum, to which the individual would be entitled under the arrangement has been made in consequence of the scheme administrator satisfying a liability under section 237B in respect of the individual, if and to the extent that the adjustment is reflected in PE or LSE the amount of the adjustment is to be added to PE or LSE.

(8D)But no amount is to be added under subsection (8C) by reason of an adjustment made in consequence of the scheme administrator satisfying a liability under section 237B in a case where subsection (6) of that section applied.]

F60(9). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F61236APost-entitlement enhancementsU.K.

(1)This section applies in relation to the arrangement if, during the pension input period (“the affected pension input period”), the individual enters into a scheme for the making of an avoidance-inspired post-entitlement enhancement.

(2)A “post-entitlement enhancement” is an increase in the annual rate of a scheme pension under the arrangement, at a time after the member has become entitled to the scheme pension.

(3)A post-entitlement enhancement is “avoidance-inspired” if the main purpose, or one of the main purposes, of the individual in entering into the scheme was to avoid or reduce a liability to the annual allowance charge.

(4)This Part has effect in relation to the arrangement and the individual, as respects the affected pension input period and all subsequent pension input periods, as if—

(a)section 234 were modified in accordance with subsection (5), and

(b)sections 235 and 236 were omitted.

(5)The modifications of section 234 are that—

(a)in subsection (4), for the words after “the arrangement is” there are substituted “ such amount as, applying normal actuarial practice, is the expected cost of giving effect to the individual's rights under the arrangement at the end of the immediately preceding pension input period (or is nil if the pension input period is the first pension input period of the arrangement). ”,

(b)in subsection (5), for the words after “the arrangement is” there are substituted “ such amount as, applying normal actuarial practice, is the expected cost of giving effect to the individual's rights under the arrangement at the end of the pension input period. ”, and

(c)subsection (6) is omitted.

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

237Hybrid arrangementsU.K.

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

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

(3)Input amount A is what would be the pension input amount under sections 230 to 232 if the benefits provided to or in respect of the individual under the arrangement were cash balance benefits.

(4)Input amount B is what would be the pension input amount under section 233 if the benefits provided to or in respect of the individual under the arrangement were other money purchase benefits.

(5)Input amount C is what would be the pension input amount under sections 234 to [F62236A] if the benefits provided to or in respect of the individual under the arrangement were defined benefits.

[F63237ALiability of individualU.K.

(1)The individual is liable to the annual allowance charge.

(2)The individual is liable to the annual allowance charge whether or not—

(a)the individual, and

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

are residentF64... or domiciled in the United Kingdom.

237BLiability of scheme administratorU.K.

(1)This section applies if—

(a)the amount of the individual's liability to the annual allowance charge for a tax year exceeds £2,000, and

(b)the pension scheme input amount in the case of the individual in relation to a registered pension scheme for the tax year exceeds the amount of the annual allowance specified in section 228(1) for the tax year.

(2)The pension scheme input amount in the case of the individual in relation to a pension scheme for a tax year is the aggregate of the pension input amounts for the tax year in respect of arrangements relating to the individual under the pension scheme.

[F65(2A)If the chargeable amount for the tax year in the individual's case is the alternative chargeable amount, each of the following is treated as being a reference to the amount that the annual allowance charge for the tax year would be in the individual's case if the chargeable amount were the default chargeable amount—

(a)the reference in subsection (1)(a) to the amount of the individual's liability to the annual allowance charge for the tax year, and

(b)the reference in subsection (3) to the annual allowance charge arising in the case of the individual.]

(3)The individual may give a notice to the scheme administrator of the pension scheme specifying that the individual and the scheme administrator are to be jointly and severally liable in respect of so much of the annual allowance charge arising in the case of the individual as—

(a)does not exceed the amount of the annual allowance charge which would be chargeable on the excess mentioned in subsection (1)(b) if it were charged at the relevant rate, and

(b)is specified in the notice,

(“the joint liability amount”).

(4)In subsection (3)(a) “the relevant rate” means—

(a)in relation to so much of the excess as does not exceed the amount (if any) on which tax is chargeable in the case of the individual for the tax year at the additional rate by virtue of paragraph (c) of subsection (4A) of section 227, the additional rate,

(b)in relation to so much of the excess as is not within paragraph (a) and does not exceed the amount (if any) on which tax is so chargeable at the higher rate by virtue of paragraph (b) of that subsection, the higher rate, and

(c)in relation to any remaining part of the excess, the basic rate.

(5)The notice—

(a)must be given not later than 31 July in the year following that in which the tax year ends (but subject to subsection (6)),

(b)must be made in such manner and form, and contain such particulars, as may be prescribed by regulations made by the Commissioners for Her Majesty's Revenue and Customs, and

(c)may be amended by giving the scheme administrator notice in accordance with provision made by regulations made by the Commissioners for Her Majesty's Revenue and Customs but may not be revoked.

(6)In a case in which the individual becomes actually entitled to all of the individual's benefits under the pension scheme in the tax year or benefit crystallisation event 5, 5A or 5B occurs in the tax year in relation to the individual and the pension scheme, the notice must be given before the date on which the individual becomes so entitled or the benefit crystallisation event occurs.

(7)On receipt by the scheme administrator of the notice the scheme administrator and the individual become jointly and severally liable to pay the joint liability amount, but subject to sections 237C and 237D and to any amendment made to the notice in accordance with regulations under subsection (5)(c).

(8)The scheme administrator is liable under subsection (7) whether or not—

(a)the individual, and

(b)the scheme administrator,

are residentF66... or domiciled in the United Kingdom.

(9)Where (but for this subsection) a notice could be given to a scheme administrator of a pension scheme but, before it is given, there is a transfer of all of the sums or assets—

(a)held for the purposes of, or

(b)representing accrued rights under,

the pension scheme so as to become held for the purposes of, or to represent rights under, another registered pension scheme, the notice may not be given to that scheme administrator but may instead be given to the scheme administrator of that other pension scheme.

(10)The Treasury may by regulations make provision modifying the operation of this section in other cases in which there is a transfer of any of the sums or assets—

(a)held for the purposes of, or

(b)representing accrued rights under,

the pension scheme so as to become held for the purposes of, or to represent rights under, another registered pension scheme.

(11)The Treasury may by order amend paragraph (a) of subsection (1) so as to increase the sum for the time being specified in that paragraph.

237CExceptionsU.K.

(1)The scheme administrator of a pension scheme does not become liable under section 237B if the time when the scheme administrator would become liable is during an assessment period in relation to the pension scheme; and if an assessment period in relation to a pension scheme begins at a time when the scheme administrator is already so liable (but has not satisfied the liability), the liability ceases when the assessment period begins.

References to an assessment period are to be construed in accordance with sections 132 and 159 of the Pensions Act 2004 and articles 116 and 143 of the Pensions (Northern Ireland) Order 2005 (S.I. 2005/255 (N.I. 1)).

(2)The scheme administrator of a pension scheme is not liable under section 237B in respect of any amount if there is no power to make a consequential adjustment to the entitlement of the individual concerned to benefits under the pension scheme in respect of the amount because of section 237E(2) (inalienability of guaranteed minimum pension etc).

(3)The Treasury may by regulations prescribe other circumstances in which a scheme administrator of a pension scheme does not become, or ceases to be, liable under section 237B.

237DDischarge of scheme administrator's liabilityU.K.

(1)If the scheme administrator of a pension scheme is liable under section 237B, the scheme administrator may apply to an officer of Revenue and Customs for the discharge of the scheme administrator's liability on either of the following grounds.

(2)The grounds are—

(a)that paying the amount to which the scheme administrator is liable would be to the substantial detriment of the interests of the members of the pension scheme, and

(b)that in all the circumstances of the case it would not be just and reasonable for the scheme administrator to be liable to that amount.

(3)On receiving an application under subsection (1), an officer of Revenue and Customs must decide whether to discharge the scheme administrator's liability.

(4)An officer of Revenue and Customs must notify the scheme administrator of the decision on the application.

(5)The discharge of the scheme administrator's liability does not affect the liability of any other person in respect of the same amount.

(6)The Treasury may by regulations amend this section so as to alter the grounds on which an application under subsection (1) may be made.

(7)Regulations made by the Commissioners for Her Majesty's Revenue and Customs may make provision supplementing this section; and the regulations may in particular make provision as to the time limits for the making of an application.

237EConsequential benefit adjustments to be reasonable etcU.K.

(1)Where the scheme administrator of a pension scheme satisfies a liability under section 237B in respect of the individual, consequential adjustment must be made to the entitlement of the individual to benefits under the pension scheme on a basis that is just and reasonable having regard to normal actuarial practice.

(2)Any power to make such consequential adjustment is subject to section 159 of the Pension Schemes Act 1993 or section 155 of the Pension Schemes (Northern Ireland) Act 1993 (inalienability of guaranteed minimum pension etc).

237FPower to modify rulesU.K.

The Commissioners for Her Majesty's Revenue and Customs may by regulations make any modification of the rules of registered pension schemes that appear appropriate to facilitate the operation of sections 237A to 237E.]

238Pension input periodU.K.

(1)In the case of an arrangement under a registered pension scheme the following are pension input periods—

(a)the period beginning with the relevant commencement date and ending with [F67—

(i)a nominated date falling before the anniversary of the relevant commencement date, or

(ii)if there is not such a nominated date, the first 5 April after the relevant commencement date (or, if the relevant commencement date is itself 5 April, that date), and]

(b)each subsequent period beginning immediately after the end of a period which is a pension input period (under paragraph (a) or this paragraph) and ending with the appropriate date.

(2)“The relevant commencement date” means—

(a)in the case of a cash balance arrangement or a defined benefits arrangement, or a hybrid arrangement the only benefits under which may be cash balance benefits or defined benefits, the date on which rights under the arrangement begin to accrue to or in respect of the individual,

(b)in the case of a money purchase arrangement other than a cash balance arrangement, the first date on which a contribution within section 233(1) is made, and

(c)in the case of a hybrid arrangement not within paragraph (a), whichever is the earlier of the date mentioned in that paragraph and the date mentioned in paragraph (b).

(3)“Nominated date” means—

(a)in the case of a money purchase arrangement other than a cash balance arrangement, such date as the individual or scheme administrator nominates, and

(b)in the case of any other arrangement, such date as the scheme administrator nominates.

(4)A nomination for the purposes of subsection (3)—

(a)if by the individual, is to be made by notice to the scheme administrator, and

(b)if by the scheme administrator, is to be made by notice to the individual.

[F68(4A)A date nominated for the purposes of subsection (3) must not be a date before that on which the nomination is made.]

(5)If more than one date is nominated for the purposes of subsection (3)—

(a)in relation to the period beginning with the relevant commencement date, or

(b)in relation to a tax year following that in which the pension input period beginning with that date ends,

the date nominated first is the nominated date.

(6)“The appropriate date” means F69...—

(a)a nominated date falling in the tax year immediately after that in which the last pension input period ended, [F70or]

(b)[F71if there is not such a nominated date,] the anniversary of the date on which that period ended.

(7)Once the individual has become entitled to all the benefits which may be provided to the individual under an arrangement, the last pension input period in the case of the arrangement is [F72that in which] that was first so.

[F73238APower to make orders about chargeU.K.

(1)The Treasury may by order make provision about the annual allowance charge.

(2)The provision may include modifications of any of sections 227 to 238.

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

(4)“Modifications” includes amendments.]