PSI17.1.55 - Tax Treatment of Approved Schemes
and Payments by Approved Schemes: Tax Treatment of Approved Schemes
- Methods of Obtaining Tax Relief - Life Office Loanbacks -
Deduction of Tax From Interest
(This archived guidance relates to HMRC discretionary
practice before the 6th April 2006. For current guidance on
Registered Pension Schemes see the Registered Pension Schemes
Manual)
(This text has been withheld because of exemptions in the
Freedom of Information Act 2000)
The tax treatment of interest paid by employers on loans made
to them by or in connection with pension schemes is as follows:
- Where a loan gives rise to annual interest
(ie for a period of one year or more) section 349 ICTA 1988 applies
and the payer is required to deduct income tax on payment and to
account for it to the Revenue.
- Where the loan is for less than one year
section 349 does not normally apply and the interest may be paid
gross. Many small self-administered schemes have established loans
for a period of less than one year in order to avoid the need to
deduct tax but this may not be effective if there is an intention
to review the loan ie where there may be a series of consecutive
short term loans. (See SSAS Guidance Notes.)
- Where we become aware that a series of
short term loans is (or is likely to be) a feature in any case we
should advise the relevant Inspector in the following terms:-
“Section 349 ICTA 1988 will apply where the interest is
yearly. Whether interest is short or yearly will depend on
interpretation of the agreement. Agreements of less than 12 months
normally give rise to short interest unless it is clear that the
extension beyond that period is intended by the parties in making
the arrangements. Cases of difficulty should be referred to Savings
and Investment Division 5/2.”
