EIM45625 - Employment income provided through third parties: exclusions: retirement benefits etc: purchases out of annuities out of pension scheme rights
Sections 554V and 554Z17(2) ITEPA 2003
Conditions
Annuity contract
Insurance company
Pre-6 April 2011 annuity rights
Relevant step taken by the purchaser
Relevant step taken by the insurance company
Sourcing
How sections 554T to 554X are related
In summary, section 554V shelters the capital cost of annuities from Part 7A ITEPA 2003 to the extent that they are bought out of pre-6 April 2011 annuity rights.
There is an illustrative example in EIM45630.
Conditions
Section 554V applies if 3 conditions are met:
- an 바카라 사이트˜annuity contract바카라 사이트™ is purchased from an 바카라 사이트˜insurance company바카라 사이트™
- it is purchased wholly out of rights which A has under a pension scheme (within the meaning of Part 4 FA 2004) - this definition of 바카라 사이트˜pension scheme바카라 사이트™ is in the Pensions Tax Manual at PTM021000
- these rights are 바카라 사이트˜pre-6 April 2011 annuity rights바카라 사이트™.
If section 554V applies, it gives 2 exclusions: one for relevant steps taken by the purchaser and one for relevant steps taken by the insurance company.
Section 554V can prevent a step within section 554Z18 or 554Z19 from giving rise to Part 7A income.
On sections 554Z18 and 554Z19 (undertakings given by employers etc. in relation to retirement benefits etc: earmarking etc. and provision of security) see EIM45150 and EIM45155 respectively.
Annuity contract
바카라 사이트˜Annuity contract바카라 사이트™ means a contract for the provision of an annuity both:
- granted for consideration in money or money바카라 사이트™s worth in the ordinary course of a business of granting annuities on human life
- payable for a term ending at a time ascertainable only by reference to the end of a human life.
It does not matter if the annuity may in some circumstances end before or after the life.
Insurance company
There are 2 types of 바카라 사이트˜insurance company바카라 사이트™:
- a person who has permission under Part 4 Financial Services and Markets Act 2000 to carry out contracts of long-term insurance
- a person resident in a territory outside the EEA whose normal business includes the provision of annuities and is regulated in that territory by the government or the appropriate regulatory body.
Pre-6 April 2011 annuity rights
바카라 사이트˜Pre-6 April 2011 annuity rights바카라 사이트™ are rights which both:
- accrued before 6 April 2011
- are specifically to receive an annuity.
Section 554V uses the concept of 바카라 사이트˜pre-6 April 2011 annuity rights바카라 사이트™ to prevent people from obtaining an exclusion from Part 7A income by converting rights to other types of benefits held before 6 April 2011 into rights to receive an annuity on or after that date.
The term 바카라 사이트˜rights바카라 사이트™ includes both actual rights and prospective rights.
The term 바카라 사이트˜pre-6 April 2011 annuity rights바카라 사이트™ includes both actual rights and prospective rights accrued by that time. In this context, 바카라 사이트˜accrued by that time바카라 사이트™ refers to the fund value at that time plus later investment growth up to the time of the annuity purchase.
Suppose that on 5 April 2011 a member had the actual or prospective right to receive an annuity either:
- unconditionally
- under a member바카라 사이트™s election
- at the option or discretion of the trustee.
Then the intention is that the value of relevant steps taken in the process of purchasing, transferring or paying the annuity will be excluded from Part 7A income but only to the extent that no other rights are involved (such as those arising from contributions paid after 5 April 2011).
The detailed time-test for whether the member had such a right to receive an annuity (whether by explicit provision, by election, by trustee바카라 사이트™s option or by discretion) is that the right to receive an annuity either:
- could have been exercised at 5 April 2011
- could have been exercised at that date had the member met the sufficient conditions (for example, around age).
For the purposes of this test, it does not matter if:
- the right is exercised later
- the purchase amount includes growth occurring after 5 April 2011.
Relevant step taken by the purchaser
There are 3 scenarios in which a relevant step taken by the purchaser will not give rise to Part 7A income:
- the purchaser takes a relevant step for the sole purpose of purchasing the annuity contract
- the purchaser takes a relevant step for the sole purpose of transferring the beneficiary바카라 사이트™s rights under the annuity contract to A or a person 바카라 사이트˜linked바카라 사이트™ with A (see EIM45860)
- on the purchase of the annuity contract, the purchaser otherwise takes a relevant step within section 554B the subject of which is the beneficiary바카라 사이트™s rights under the annuity contract.
Relevant step taken by the insurance company
There are 2 scenarios in which a relevant step taken by the insurance company will not give rise to Part 7A income:
- the insurance company takes a relevant step for the sole purpose of selling the annuity contract
- on the sale of the annuity contract, the insurance company otherwise takes a relevant step within section 554B the subject of which is a sum of money or asset representing the purchase price received for the annuity contract.
Sourcing
If A바카라 사이트™s rights out of which the annuity contract is purchased are partly but not wholly pre-6 April 2011 annuity rights, treat the relevant step as being 2 relevant steps:
- one in relation to the annuity contract so far as it is purchased out of rights which are pre-6 April 2011 annuity rights
- one in relation to the annuity contract so far as it is purchased out of rights which are not pre-6 April 2011 annuity rights.
Then apportion the sum of money or asset which is the subject of the relevant step on a just and reasonable basis between those 2 relevant steps.
Section 554V only shelters the former.
In general, investment returns on funds held on 5 April 2011 can be taken into account when valuing the 바카라 사이트˜pre-6 April 2011 annuity rights바카라 사이트™ which are sheltered from Part 7A income by section 554V.
How sections 554T to 554X are related
Sections 554T, 554U, 554V, 554W and 554X are exclusions relating to retirement benefits etc.
To the extent that they are applicable, apply them in the order: