Finance Act 1986

Section 46.

SCHEDULE 12 Pension Scheme Surpluses

PART I Payments to Employers

1 (1) This paragraph applies where a payment is made to an employer out of funds which are or have been held for the purposes of a scheme which is or has at any time been an exempt approved scheme.

(2) An amount equal to 40 per cent, of the payment shall be recoverable by the Board from the employer.

(3) This paragraph applies whether or not the payment is made in pursuance of Part II of this Schedule.

(4) Paragraph 4 of Schedule 5 to the [1970 c. 24.] Finance Act 1970 (charge to tax on payments to employer) shall not apply to a payment to which this paragraph applies or would apply apart from sub-paragraph (5) or (6) below.

(5) This paragraph does not apply to a payment to the extent that, if this paragraph had not been enacted, the employer would have been exempt, or entitled to claim exemption, from income tax or corporation tax in respect of the payment.

(6) This paragraph does not apply where the employer is a charity; and "charity" here has the same meaning as in section 360 of the Taxes Act.

(7) This paragraph does not apply to any payment of any prescribed description.

(8) This paragraph does not apply to a payment made before the scheme became an exempt approved scheme.

(9) References in this paragraph to a payment include references to a transfer of assets or other transfer of money's worth.

(10) In this paragraph "exempt approved scheme" means an exempt approved scheme within the meaning given by section 21(1) of the [1970 c. 24.] Finance Act 1970.

(11) This paragraph applies to a payment made after 18th March 1986 unless made as mentioned in sub-paragraph (12) or (13) below.

(12) This paragraph does not apply to a payment made in pursuance of the winding-up of the scheme where the winding-up commenced on or before 18th March 1986.

(13) This paragraph does not apply to a payment made in pursuance of an application which—

(a) was made to the Board on or before 18th March 1986 and was not withdrawn before the making of the payment, and

(b) sought the Board's assurance that the payment would not lead to a withdrawal of approval under section 19(3) of the Finance Act 1970.

2 (1) In relation to an amount recoverable as mentioned in paragraph 1(2) above, regulations may make any of the provisions mentioned in sub-paragraph (2) below; and for this purpose the amount shall be treated as if it were—

(a) an amount of income tax chargeable on the employer under Case VI of Schedule D for the year of assessment in which the payment is made, or

(b) where the employer is a company, an amount of corporation tax chargeable on the company for the accounting period in which the payment is made.

(2) The provisions are—

(a) provision requiring the administrator of the scheme or the employer (or both) to furnish to the Board, in respect of the amount recoverable and of the payment concerned, information of a prescribed kind;

(b) provision enabling the Board to serve a notice or notices requiring the administrator or employer (or both) to furnish to the Board, in respect of the amount and payment, particulars of a prescribed kind;

(c) provision requiring the administrator to deduct out of the payment the amount recoverable and to account to the Board for it;

(d) provision as to circumstances in which the employer may be assessed in respect of the amount recoverable;

(e) provision that, in a case where the employer has been assessed in respect of the amount recoverable but has not paid it (or part of it) within a prescribed period, the administrator may be assessed and charged (in the employer's name) in respect of the amount (or part unpaid);

(f) provision that, in a case where the amount recoverable (or part of it) has been recovered from the administrator by virtue of an assessment in the employer's name, the administrator is entitled to recover from the employer a sum equal to the amount (or part);

(g) provision enabling the employer or administrator (as the case may be) to appeal against an assessment made on him in respect of the amount recoverable;

(h) provision as to when any sum in respect of the amount recoverable is payable to the Board by the administrator or employer and provision requiring interest to be paid on any sum so payable;

(i) provision that an amount paid to the Board by the administrator shall be treated as paid on account of the employer's liability under paragraph 1(2) above.

(3) For the purpose of giving effect to any provision mentioned in sub-paragraph (2)(a) or (b) above the words "Regulations under paragraph 2 of Schedule 12 to the Finance Act 1986" shall be added at the end of each column in the Table in section 98 of the [1970 c. 9.] Taxes Management Act 1970 (penalties for failure to furnish information etc.).

(4) For the purpose of giving effect to any other provision mentioned in sub-paragraph (2) above, regulations under this paragraph may include provision applying (with or without modifications) provisions of the enactments relating to income tax and corporation tax.

(5) Subject to any provision of regulations under this paragraph—

(a) a payment to which paragraph 1 above applies shall not be treated as a profit or gain brought into charge to income tax or corporation tax and shall not be treated as part of the employer's income for any purpose of the Taxes Act, and

(b) the amount recoverable shall not be subject to any exemption or reduction (by way of relief, set-off or otherwise) or be available for set-off against other tax.

(6) If the employer is a company and a payment to which paragraph 1 above applies is made at a time not otherwise within an accounting period of the company, an accounting period of the company shall for the purposes of sub-paragraph (1)(b) above be treated as beginning immediately before the payment is made.

3 (1) In this Part of this Schedule "prescribed" means prescribed by regulations.

(2) The power to make regulations under this Part of this Schedule shall be exercisable by the Treasury by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons.

PART II Reduction of Surpluses

4 (1) The Board may make regulations providing for this Part of this Schedule to apply, as from a prescribed date, in relation to any exempt approved scheme of a prescribed kind.

(2) The Board may make regulations providing for prescribed provisions of this Part of this Schedule to apply, as from a prescribed date, in prescribed circumstances, and subject to any prescribed omissions or modifications, in relation to any exempt approved scheme of another prescribed kind.

(3) In this Part of this Schedule—

(a) "exempt approved scheme" has the meaning given by section 21(1) of the [1970 c. 24.] Finance Act 1970, and

(b) "prescribed" means prescribed by regulations made by the Board.

(4) The power to make regulations under this paragraph shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons.

5 (1) The administrator of a scheme in relation to which this Part of this Schedule applies shall, in prescribed circumstances and at a prescribed time, either produce to the Board a written valuation such as is mentioned in sub-paragraph (2) below or give to the Board a certificate such as is mentioned in sub-paragraph (3) below.

(2) The valuation must be a valuation of the assets held for the purposes of the scheme and the liabilities of the scheme, must be determined in accordance with prescribed principles and fulfil prescribed requirements, and must be signed by a person with qualifications of a prescribed kind.

(3) The certificate must state whether or not the value of the assets (as determined in accordance with prescribed principles) exceeds the value of the liabilities (as so determined) by a percentage which is more than the prescribed maximum, must be in a prescribed form, and must be signed by a person with qualifications of a prescribed kind.

(4) In section 98 of the [1970 c. 9.] Taxes Management Act 1970 (penalty for failure to produce documents etc.) the following shall be inserted at the end of the second column of the Table—

“Paragraph 5 of Schedule 12 to the Finance Act 1986”.

6 (1) Subject to paragraph 7(4) below, where a valuation produced under paragraph 5 above shows, or a certificate given under that paragraph states, that the value of the assets exceeds the value of the liabilities by a percentage which is more than the prescribed maximum, the administrator of the scheme shall within a prescribed period submit to the Board for their approval proposals which comply with subparagraph (2) below.

(2) The proposals must be proposals for reducing (or, subject to paragraph (b) below, eliminating) the excess in a way or ways set out in the proposals and falling within sub-paragraph (3) below; and they must be such as to secure that—

(a) by the end of a prescribed period the percentage (if any) by which the value of the assets exceeds the value of the liabilities is no more than the prescribed maximum, and

(b) if the way, or one of the ways, set out in the proposals falls within sub-paragraph (3)(a) below, there remains an excess which is of a level not less than the prescribed minimum.

(3) Subject to sub-paragraph (4) below, the permitted ways of reducing or eliminating the excess are—

(a) making payments to an employer;

(b) suspending for a period (of 5 years or less) set out in the proposals an employer's obligation to pay contributions under the scheme or reducing for such a period the amount of an employer's contributions under the scheme;

(c) suspending for a period (of 5 years or less) set out in the proposals the obligation of employees to pay contributions under the scheme or reducing for such a period the amount of employees' contributions under the scheme;

(d) improving existing benefits provided under the scheme;

(e) providing new benefits under the scheme;

(f) such other ways as may be prescribed.

(4) In prescribed circumstances sub-paragraph (3) above shall apply subject to such omissions or modifications as may be prescribed.

(5) Subject to paragraph 7(4) below, if the administrator of the scheme fails to submit proposals to the Board within the period mentioned in sub-paragraph (1) above, or if proposals submitted to them within that period are not approved by the Board within a further prescribed period, paragraph 10 below shall apply.

7 (1) Where a valuation has been produced under paragraph 5 above, the Board may serve on the administrator of the scheme a notice requiring him to furnish the Board, within a prescribed period, with such particulars relating to the valuation as may be specified in the notice.

(2) Where a certificate has been given under paragraph 5 above, the Board may serve on the administrator of the scheme a notice requiring him to produce to the Board, within a prescribed period, a written valuation such as is mentioned in paragraph 5(2) above.

(3) Where a valuation has been produced in compliance with a notice served under sub-paragraph (2) above, the Board may serve on the administrator of the scheme a further notice requiring him to furnish the Board, within a prescribed period, with such particulars relating to the valuation as may be specified in the notice.

(4) Where a notice is served on the administrator of a scheme under sub-paragraph (1) or (2) above, paragraph 6(1) and (5) above shall cease to apply.

(5) In section 98 of the [1970 c. 9.] Taxes Management Act 1970 the following shall be inserted at the end of the first column of the Table—

“Paragraph 7 of Schedule 12 to the Finance Act 1986”.

8 (1) Where particulars have been furnished under paragraph 7 above, or a valuation has been produced under that paragraph, the Board shall, within a prescribed period, serve on the administrator of the scheme a notice—

(a) stating that they accept the valuation produced under paragraph 5 or, as the case may be, 7 above, or

(b) stating that they do not accept the valuation so produced, and specifying their estimate of the value of the liabilities of the scheme at the relevant time and their estimate of the value of the assets held for the purposes of the scheme at that time.

(2) For the purposes of sub-paragraph (1)(b) above, the relevant time is the time specified in the valuation produced under paragraph 5 or 7 above as the time by reference to which the values of the assets and liabilities are determined.

(3) Where—

(a) in a case falling within sub-paragraph (1)(a) above, the valuation shows that the value of the assets exceeds the value of the liabilities by a percentage which is more than the prescribed maximum, or

(b) in a case falling within sub-paragraph (1)(b) above, the value of the assets as estimated by the Board exceeds the value of the liabilities as so estimated by a percentage which is more than the prescribed maximum,

the administrator of the scheme shall within a prescribed period submit to the Board for their approval proposals which comply with paragraph 6(2) to (4) above.

(4) If the administrator of the scheme fails to submit proposals to the Board within the period mentioned in sub-paragraph (3) above, or if proposals submitted to them within that period are not approved by the Board within a further prescribed period, paragraph 10 below shall apply.

9 (1) Where proposals are submitted to the Board under paragraph 6(1) or 8(3) above and they approve them within the further prescribed period mentioned in paragraph 6(5) or 8(4) above, the administrator of the scheme shall carry out the proposals within the period mentioned in paragraph 6(2) above.

(2) If the administrator fails to carry out the proposals within that period, paragraph 10 below shall apply.

10 (1) Where this paragraph applies the Board may specify a percentage equivalent to the fraction—

(a) whose numerator represents their estimate of the value of the liabilities of the scheme at the relevant time increased by a prescribed percentage, and

(b) whose denominator represents their estimate of the value of the assets held for the purposes of the scheme at that time.

(2) For the purposes of this paragraph the relevant time is the time specified—

(a) in the valuation produced or certificate given under paragraph 5 above, or

(b) where a valuation has been produced under paragraph 7 above, in that valuation,

as the time by reference to which the values of the assets and liabilities are determined.

(3) Where a percentage has been so specified—

(a) section 21(2) of the [1970 c. 24.] Finance Act 1970 (income tax exemption) shall apply only to that percentage of any income derived in the relevant period from the assets held for the purposes of the scheme,

(b) section 21(2 A) of that Act (further income tax exemption) shall apply only to that percentage of any underwriting commissions applied in the relevant period for the purposes of the scheme,

(c) section 21(7) of that Act (capital gains tax exemption) shall apply only to that percentage of any gain accruing on the disposal in the relevant period of any of those assets, and

(d) section 26(1) of the [1973 c. 51.] Finance Act 1973 (charge to tax on certain profits or gains) shall by virtue of section 26(1 )(a) not apply only to that percentage of any profits or gains arising to the scheme in the relevant period.

(4) Sub-paragraphs (5) to (8) below shall apply where a percentage has been so specified, securities are transferred in the relevant period, and the transferor or transferee is such that, if he became entitled to any interest on them, exemption could be allowed under section 21(2) of the Finance Act 1970.

(5) Paragraph 32(1) and (2) of Schedule 23 to the [1985 c. 54.] Finance 1985 (accrued income scheme) shall not apply.

(6) Where, in consequence of sub-paragraph (5) above, section 73(2)(a) or (3)(b) of the 1985 Act applies, the sum concerned shall be treated as reduced by an amount equal to the specified percentage of itself.

(7) Where, in consequence of sub-paragraph (5) above, section 73(2)(b) or (3)(a) of the 1985 Act applies, the relief concerned shall be treated as reduced by an amount equal to the specified percentage of itself.

(8) For the purposes of section 74(5) of the 1985 Act, the amount of interest falling to be reduced by the amount of the allowance shall be treated as the amount found after applying section 21(2) of the [1970 c. 24.] Finance Act 1970.

(9) In sub-paragraphs (4) to (8) above expressions which also appear in Chapter IV of Part II of the 1985 Act have the same meanings as in that Chapter.

(10) In this paragraph "the relevant period" means the period beginning at the relevant time and ending when it is proved to the satisfaction of the Board that the value of the assets (as determined in accordance with prescribed principles) exceeds the value of the liabilities (as so determined) by a percentage which is no more than the prescribed maximum.

11 (1) The Board may make regulations providing that an appeal may be brought against a notice under paragraph 8(1)(b) above as if it were notice of the decision of the Board on a claim made by the administrator of the scheme concerned.

(2) Regulations under this paragraph may include—

(a) provision that bringing an appeal shall suspend the operation of paragraph 8(3) and (4) above;

(b) other provisions consequential on the provision that an appeal may be brought (including provisions modifying this Part of this Schedule).

(3) The power to make regulations under this paragraph shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons.