RPSM07102130 - Technical Pages: Investments: Non arm’s length transactions: Overview: Connected parties

Connected parties

Where a transaction takes place between a registered pension scheme and a connected party in either categories A, B or C below the transaction must be made on arm’s length bargain terms. Transactions between anyone in categories A, B or C which take place on other than arm’s length bargain terms may create an unauthorised payment (see RPSM07108010)

Category A Transactions

Any transactions between the scheme and the member or sponsoring employer.

Category B Transactions

Any transactions between the scheme and people connected with members and or connected employers. Connected for this purpose means anyone who falls within the definition of section 839 ICTA 1988 (see RPSM07103180).

Category C Transactions

Any transactions between the scheme and a third party, which is directly or indirectly for the benefit of a member or sponsoring employer.

Where there is a transaction between the scheme and anyone within categories A, B or C then these must be made at an arms length bargain. If they are not an arms length bargain and as a consequence value passes to the member the difference will be taxed as an unauthorised payment (see RPSM07108010). Scheme trustees should ensure that when a connected party transaction is being made that they take a sensible, commercial and prudent course and obtain relevant valuations from suitably qualified valuers.

Example

A scheme sells an asset worth £1m to a member at a price of £500,000. There is value passed to the member of £500,000 and this amount will be taxed as an unauthorised payment.