The Taxation of Pension Schemes (Transitional Provisions) (Amendment) Order 2008

EXPLANATORY NOTE

(This note is not part of the Order)

This Order amends the Taxation of Pension Schemes (Transitional Provisions) Order 2006 (“the principal Order”) in making further transitional provision in relation to the taxation of pension benefits.

Article 1 provides for the citation, commencement and effect of this Order. It will have retrospective effect in relation to pensions and lump sums paid since 6th April 2006. Section 283(3C) of the Finance Act 2004 allows an order made under subsection (2) or (3A) (both those powers are exercised here) to include provision having effect in relation to times before it is made if it does not increase any person’s liability to tax.

Article 3 amends the principal Order by inserting a new article 5A. This modifies paragraph 2(4) of Schedule 28 to the Finance Act 2004 to allow a further case where payment of a reduced pension will qualify as a “scheme pension”. The effect is that where the conditions are satisfied, which requires among other things that the pension was being paid before 3 July 2007, payment of the reduced pension will not give rise to a charge to tax.

Paragraph (3) of the new article 5A that is inserted in the principal Order refers to two publications. Both of these are available on the Revenue & Customs website at:

www.hmrc.gov.uk/pensionschemes/former-regime.htm

Article 4 amends article 23 of the principal Order. The changes mirror those made by paragraph 13 of Schedule 29 to the Finance Act 2008 (c. 9), which simplify the rules relating to the protection of tax-free lump sums paid to persons who had accrued rights to them before 6th April 2006 (the date upon which the simplified pensions taxation regime in the Finance Act 2004 came into effect). There is now only one rule, instead of two, with the presence or absence of “relevant benefit accrual” no longer relevant. The resulting rule is potentially more generous, because it allows for the possibility of an additional lump sum allowance (ALSA) to be taken into account in determining the “permitted maximum” up to which lump sums may be paid without incurring tax.

A full and final Impact Assessment has not been produced for this instrument as a negligible impact on the private or voluntary sectors is foreseen.