Pension Simplification Regulations Laid

Following Royal Assent of the Finance Act 2006 on 19 July 2006, HM Revenue & Customs has laid a number of pension simplification regulations.

The following draft regulations have been laid by HM Revenue & Customs:

The Registered Pensions Schemes (Extension of Migrant Member Relief) Regulations

Migrant member relief allows tax relief, under certain circumstances, on contributions to overseas pension schemes that are not registered pension schemes. The regulations allow access to migrant member relief where the overseas scheme of which an individual is currently a member is not the same overseas scheme in respect of which the individual originally became entitled to migrant member relief. This will allow migrant member relief to be retained, for example, where the individual's pension rights are transferred to another overseas pension scheme as part of a company takeover.

The Pension Schemes (Taxable Property Provisions) Regulations 2006

These Regulations make provision supplementing those contained in the Finance Act 2006 providing for a tax charge on investments by investment-regulated pension schemes in residential property and tangible moveable property. They provide that the method of valuing UK residential property set out in the Bill apply to non UK residential property and tangible moveable assets. They also provide rules for taxing overseas assets held by non-UK resident registered pension schemes.

The Investment-regulated Pension Schemes (Exception of Tangible Moveable Property) Order 2006

These Regulations exclude certain items of tangible moveable property from being regarded as taxable property for the purposes of the provisions in the Finance Act 2006 providing for a tax charge on investments by investment-regulated registered pension schemes in residential property and tangible moveable property. The items excluded are investment grade gold bullion and small items used for the administration of investment vehicles owned by such pension schemes.

The Pension Schemes (Application of UK Provisions to Relevant Non-UK Schemes) (Amendment) Regulations 2006

The principal Regulations serve two purposes;

• To provide a method of computing the amount to be charged to UK tax in respect of a payment by a relevant non-UK pension scheme; and

• To modify the provisions of Part 4 of the Finance Act 2004 ("the Act"). This is to ensure that the new regime for registered pension schemes works in the context of relevant non-UK schemes.

These Regulations amend the principal Regulations to ensure the provisions contained in the Finance Act 2006 providing for a tax charge on investment by investment-regulated pension schemes in residential property and tangible moveable property cannot be side-stepped by transferring funds to a non UK scheme which are then used to purchase such assets.

The Registered Pension Schemes (Provision of Information) (Amendment) Regulations 2006

These Regulations amend the requirements for the provision of information in connection with registered pension schemes, qualifying overseas pension schemes and qualifying recognised overseas pension schemes. They implement provisions contained in the Finance Act 2006.

Firstly, the Regulations provide for scheme administrators to report certain further events. These are

• when a stand-alone lump sum is paid,

• when a scheme starts or ceases to be an investment-regulated pension scheme,

• when a tax charge arises on an investment-regulated pension scheme in relation to income or gains from residential property or tangible moveable property,

• when there is a change in the country or territory in which a scheme is established and

• where a scheme becomes or ceases to be an occupational pension scheme.

Secondly, the Regulations provide that an individual, who is caught by the provision contained in section 159 of the Finance Act 2006 countering the recycling of tax free lump sums, is obliged to tell the scheme that provided their lump sum that they are so caught. This is so that the scheme can fulfil its obligation to report unauthorised payments to HM Revenue & Customs.

Thirdly, the Regulations provide that overseas schemes, whose members are caught by either the recycling rule or the prohibited assets rules are obliged to report to HM Revenue & Customs the unauthorised payments that arise as a consequence.

Fourthly, the regulations provide that individuals to whom paragraph 23 of Schedule 23 to the Finance Act 2006 applies (calculation of maximum lump sum for scheme pensions provided from money purchase arrangements) are obliged, where necessary, to tell schemes about the amount of their fund used to provide the pension. This is so that any scheme paying a subsequent lump sum to the individual is able to calculate the maximum tax-free lump sum that it may pay within the overall limit of 25% of the lifetime allowance.

The Taxation of Pension Schemes (Transitional Provisions)(Amendment) Order 2006

This Order contains amendments to transitional provisions in relation to the provisions for pension schemes which came into force on 6th April 2006. Section 283(3C) of the Finance Act 2004 provides that an Order may have retrospective effect if it does not increase any person's liability to tax. The provisions of this Order reduce, rather than increase, taxpayers' liability, and accordingly has effect from 6th April 2006. Firstly, the Order modifies section 216 which sets out the table of events which are benefit crystallisation events in relation to an individual and the amount which is crystallised by each of those events so that benefit crystallisation event 5A which will be inserted by paragraph 29 of Schedule 23 to the Finance Act 2006, is not triggered where the individual had a drawdown fund in payment at A day. This new article is necessary because the provisions in the second column of that benefit crystallisation event, preventing overlap with other such events, will not apply appropriately to funds that were in existence before 6th April 2006.

Secondly, under the new pensions tax regime certain lump sum death benefits may be paid, which are tested against the lifetime allowance and any amount that falls above the lifetime allowance is taxable at 55%. There is also a requirement that such lump sum death benefits must be paid within 2 year's of the member's death. Lump sums paid outside of this time limit will not meet the pension rules and will be subject to an unauthorised payments charge of 70%. Transitional protection has already been provided so that the lifetime allowance charge should not apply to lump sums that arise in respect of people who died before the new pensions tax regime was introduced 6th April 2006. But this protection is not effective in all circumstances and, in particular, it retains the 2 year time limit for the payment of death benefits, albeit that the member's death has occurred some time before the start of the new regime. This order extends transitional protection to lump sum death benefits paid by pre A-day schemes in respect of members, and dependants of members, who died before 6th April 2006. The period is extended to two years from the date on which the pension scheme administrator could reasonably have known of the death of the member or dependant concerned, rather than from the date of death, to reflect the fact that scheme administrators do not always learn of the death immediately.

The Taxation of Pension Schemes (Consequential Amendments) (No. 2) Order 2006

This instrument makes consequential amendments to other primary legislation to secure consistency with the Provisions of Part 4 Finance Act 2004.