Schedule 31 - Taxation of benefits under registered

Finance Bill – in a Public Bill Committee at 4:19 pm on 15th June 2004.

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Amendment made, No. 427, in

schedule 31, page 446, line 2, at end insert—

'(2A) Omit the entry relating to section 623.'.—[Ruth Kelly.]

Photo of George Osborne George Osborne Conservative, Tatton

I beg to move amendment No. 399, in

schedule 31, page 446, line 30, leave out

'accrues in that year irrespective of when any amount is actually paid'

and insert

'is paid in that year'.

The schedule is about how pensions and lump sums are to be taxed. I confess that the amendment is very technical and complex. The reason for it is that there is a potential timing problem in the relationship between new sections 579A and 579B. New section 579A(2) provides that new section 579 does not apply if, when the pension is paid, an unauthorised payment charge arises. New section 579B applies only when new section 579A applies. However, one will not know whether and to what extent 579A has been disapplied

until the pension is paid, at which time one can see whether 579A(2) is relevant. I am delighted that I got through that without the hon. Member for Wolverhampton, South-West asking me what it was all about.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

I am delighted that the hon. Gentleman has moved his amendment with such precision and clarity. He has taken me rather by surprise as I was not expecting so technical a point to be raised on the schedule. Perhaps it would be best if I wrote to him. The amendment would change the basis of the assessment that we are introducing in the simplified regime set out in new chapter 5A of the Income Tax (Earnings and Pensions) Act 2003, a more substantive point than the hon. Gentleman made.

We have provided that pension income including pensions, annuities and income withdrawal will be taxable when it accrues rather than when it is paid. It will be taxable on the person receiving or entitled to the pension, and will be subject to the operation of PAYE by the person who pays the pension. That matches the way in which pensions from approved retirement benefits schemes, state pensions and other UK pension income are currently taxable. It will change the basis of assessment for pensions and annuities from former approved superannuation funds and from personal pensions on a paid or receipts basis. Pensions and retirement annuity contracts are currently taxable on the arising basis. There is a transitional provision for retirement annuity contracts, which we shall turn to when we debate schedule 4 and which will allow that basis to continue.

If I understand the amendment correctly, it would change the basis of assessment of taxable pension income in a tax year from the amount that accrues in a tax year to the amount that is paid in the year. If that is not the intention, perhaps the hon. Gentleman would clarify the point. We want as simple a basis as possible in the schedule. Taxing pensions on the amount that accrues rather than on the amount that is paid allows the payment to be spread over the years to which the payment relates, and there is no danger of an administrative error in the scheme causing higher taxation of pensions.

The basis of assessment that we are adopting will put the taxation of pensions from registered pension schemes on the same footing as the basis on which the state pension and other pension income from UK pensions is taxed. That will bring clarity, consistency and fairness and is the right way to go. I therefore urge the hon. Gentleman to withdraw his amendment, unless he has a different point to make.

Photo of George Osborne George Osborne Conservative, Tatton

When one is preparing for Committees, one receives representations. Many of the amendments that we make are substantive ones, but we also receive representations from pensions experts, lawyers and so on. The amendment was proposed by a lawyer. It is meant to be helpful, and I suggest that the Government go away and consider the point that I have made, which simply replicates a point made by a leading pensions lawyer. If there is any merit in it, they should find an opportunity to amend the Bill; if not, let us just forget that we had the debate. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of David Laws David Laws Shadow Chief Secretary to the Treasury

I beg to move amendment No. 188, in

schedule 31, page 447, line 40, at end insert—

'(g) a charity lump sum death benefit'.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

With this it will be convenient to discuss the following:

Amendment No. 189, in

schedule 31, page 448, line 24, at end insert

' ''charity lump sum death benefit'' '.

Photo of David Laws David Laws Shadow Chief Secretary to the Treasury

My last contribution, as you rightfully spotted, Sir John, was rather broad. Like the hon. Member for Tatton, I intend to make a slightly narrower point about the schedule.

Last week we discussed some of the provisions that the Government have made in the Bill, which are included in the earlier clauses and schedules 28 and 29, to meet some of the conscience concerns of the Brethren, particularly in the effect of the alternatives to the secure pension fund for which the Government made provision. The hon. Gentleman made some comments last week about the fact that the Government had responded to concerns from that group in relation to that particular issue.

I thank the Financial Secretary and her colleagues, including the Paymaster General, for the amount of time that they, along with other Departments, have put in over the years to address the concerns of the Brethren and other groups. When dealing with major legislation of this kind, it would be very easy for Governments to ignore the concerns of small minorities. It is appreciated when Ministers take the time to sit down with such groups, draft changes to the legislation and sometimes table amendments that deal with the groups' concerns.

The Brethren's concern is that there appears to be an element missing from schedule 31. That element is a specific reference to the charity lump sum death benefit. The Brethren are concerned that the Government may not have intended to leave that out, and it may be an oversight. The Brethren wondered whether it would be appropriate to accept an amendment to the schedule to clarify the Government's intention.

I hope that the Financial Secretary can accept the amendment so that the Government's intention, as I understand it, can be stated in the Bill. If that is not necessary, perhaps the Financial Secretary can put it on record that the Government's intention is as understood by the Brethren.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury 4:30 pm, 15th June 2004

I hope to answer that point briefly. I agree with the hon. Gentleman that lump sums should not be taxed if they are charity death benefit lump sums, and that they should be treated in the same way as they would be in cases of serious ill health and certain other death benefit lump sums.

I hope that the hon. Gentleman will be pleased to learn that the effect of his amendment is already achieved. I am happy to put it on the record that the fact that a lump sum has been paid to a charity nominated by the member or, if the member made no

nomination, by a dependant is sufficient to secure its tax-exempt status on the recipient charity. The hon. Gentleman's amendment is not necessary, so I urge him to consider withdrawing it.

Photo of David Laws David Laws Shadow Chief Secretary to the Treasury

I am grateful to the Financial Secretary for clarifying those points, and I am pleased that she has put on the record in clear terms the Government's intention. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 31, as amended, agreed to.