RPSM07102210 - Technical Pages: Investments: Non arms length transactions: Benefits in kind

General

Because of the tax consequences of investing in taxable property (see RPSM07109000) it is anticipated that there will be limited opportunity for members to use scheme assets, The following rules do not apply in the case of taxable property held by an investment-regulated pension scheme.

However other schemes may still hold assets that will be capable of being used by a person who is, or has been, a scheme member. If, however, such persons were allowed to use them tax-free this would have a number of unacceptable consequences:

• It could alter the investment strategy of the scheme.
• It would allow members to enjoy benefits other than pension related benefits from pension scheme funds tax-free when they have already had tax relief on contributions and investment build up.
• Use of wasting assets would extract value from the fund without any tax charge on the members.

Therefore, where a person who is, or has been, a scheme member, or a member of their family or household has scheme assets provided for personal use, the cash equivalent of the benefit in kind will be charged on the member as an unauthorised payment. This also applies where a registered pension scheme has been wound up since the investment was acquired.

The Registered Pension Schemes (Provision of Information) Regulations 2006 (S.I. 567/2006) require that a registered pension scheme must report any benefits provided on the annual event report (see RPSM12301020).

In addition, the scheme administrator must give details of any benefits provided to the member before 7 July following the end of each tax year to enable the member to declare the unauthorised payments received on their individual Self-Assessment returns.

For these purposes, a member includes

• a pensioner member,
• an active member,
• a deferred member, and
• a pension credit member.

The following are members of a person’s family as determined by Section 721 Income Tax (Earnings and Pensions) Act 2003 (ITEPA) -

• the person’s spouse or civil partner,
• the person’s children and their spouses or civil partners,
• the person’s parents, and
• the person’s dependants.

And the following are members of a person’s household

• the person’s domestic staff, and
• the person’s guests.

Where, after the death of a person who is, or has been, a scheme member’, an asset held by the registered pension scheme is used to provide a benefit to a person, who, at the time of the person’s death, was a member of the person’s family or household, an unauthorised payments charge will be made on the person receiving the benefit.