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Finance Act 2012

Background Note

179.This Schedule limits the amounts on which tax relief will be given to an employer in respect of a contribution paid under an asset-backed arrangement so that the relief accurately reflects, but does not exceed, the total amount of payments made to the registered pension scheme. It also contains minor and related changes to the structured finance legislation in the last part of the Schedule (Part 5).

180.The effects of the Schedule do not apply to any straightforward monetary sum that a sponsoring employer gives to the registered pension scheme as a pension contribution or any employer’s transfer of an asset to the pension scheme which is unconditional or outright so that the pension scheme gains complete ownership of the asset on an irrevocable basis. In these cases, relief will continue to be given to the employer in respect of the contribution paid under section 196 in Finance Act 2004 provided that the requirements of that section are met.

181.At Budget 2011, the Government announced that it would consult on changing tax rules to prevent unintended and excessive relief arising from employer asset-backed pension contributions, while preserving as much flexibility as possible for employers and their pension schemes to use these contributions, as well as ensuring that the compliance process is deliverable for Government without creating undue burdens on HM Revenue & Customs or customers.

182.A consultation document, Employer Asset-backed Pension Contributions was published on 24 May 2011 and the consultation closed on 16 August 2011. The document invited views on two broad options: (a) providing upfront relief to the employer only for giving a monetary contribution or a cash-convertible asset to the pension scheme, and (b) providing either upfront relief or “pay as you go” relief depending on whether the structured finance legislation would apply to the asset-backed arrangement in order to ensure that the economic substance of the arrangement would be accurately reflected and excessive relief would not arise. The main purpose of the consultation was to establish which option would better meet the Government’s objectives as set out in the last paragraph while also ensuring that pensions tax relief would remain fair and sustainable in the long term.

183.Following the consultation, legislation was announced published on 29 November 2011 and 22 February 2012 respectively, which is designed on the basis of the second option above and informed by responses to and information received during the consultation and feedback received on the draft legislation. In order to prevent certain activity or behaviour in relation to these types of arrangement which brings a significant risk to the Exchequer, the legislation has effect from the respective dates of announcement.

184.Amendments to February and structured finance legislation were also announced on 21 March 2012 (Budget Day) to take immediate effect. These amendments are covered in a Budget supplementary document in the form of a Technical Note, which was published on the same day.

185.There are also relieving or clarifying changes to the February legislation, taking effect from 22 February 2012. The full set of legislation has been consolidated into Finance Act 2012 and published.

186.Further detail is available in the consultation document, the two Budget reports and other Budget supplementary documents, the

Autumn Statement, the Written Ministerial Statements made in November and February, the summary of responses document, and the two Tax Information and Impact Notes published on 29 November 2011 and 22 February 2012.

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