RPSM04106031 - Technical pages: Taxation: Inheritance tax and unauthorised payment tax charges on alternatively secured pension funds and dependants' alternatively secured pension funds

This guidance only applies to individuals who died before 6 April 2011. If the member reached age 75 between 22 June 2010 and 5 April 2011 you should also see RPSM17100070.

For deaths or omissions to exercise pension rights that occur on or after 6 April 2011 see guidance in the Inheritance Tax Manual at IHTM17000.

Death on or after 6 April 2007: Example where tax charges in respect of an unauthorised payment are due in relation to remaining alternatively secured pension funds but not inheritance tax

Following on from the example in RPSM04106030.

Once the scheme administrator knows there is no inheritance tax due in respect of the remaining alternatively secured pension funds, those funds are paid out of the scheme as an unauthorised member payment. By the time of the payment the amount of the funds has grown to £208,000 because of investment return since Malcolm’s death.

Although £208,000 would have been paid, an amount of £83,200 is held back to cover the maximum possible scheme sanction charge liability in respect of the unauthorised payment.

Whilst the recipient of the unauthorised payment receives only £124,800 (£208,000 - £83,200) the amount of £83,200 is added back to the amount of the unauthorised payment actually received (see RPSM04104030 and RPSM04104831).

Therefore the recipient’s liability to the unauthorised payments charge is based on £208,000 rather than the £124,800 actually received. The liability is £83,200 (£208,000 x 40%).

As the amount of the unauthorised payment (for this purpose £208,000) reached the ‘surcharge threshold’ the recipient of the payment is also liable to the unauthorised payments surcharge (see RPSM04104600). The liability is £31,200 (£208,000 x 15%).

Because the recipient of the unauthorised payment pays all of the unauthorised payments charge liability the scheme administrator’s scheme sanction charge liability in respect of the payment turns out to be £31,200; effectively the rate is 15% of £208,000 (see RPSM04104831).

Within two years of the unauthorised payment a further amount of £52,000 is paid from the scheme that represents the difference between the amount actually withheld from the original unauthorised payment and the amount of scheme sanction charge that was due in respect of the unauthorised payment (see RPSM04104030). (Note - if an amount of more than £52,000 is paid the amount in excess of £52,000 would be an unauthorised payment unless, exceptionally, it met the conditions for an authorised payment.)