RPSM09100180 - Technical Pages: Member benefits: Overview: Payments: Taxation of authorised and unauthorised member payments

Taxation of authorised and unauthorised member payments

An authorised member payment

The different authorised member payments attract appropriate tax exemptions or tax charges, depending on their nature. These are dealt with in more detail at RPSM04101000.

An unauthorised member payment – unauthorised payments charge

Any payment (whether actual or deemed) that is an unauthorised member payment attracts a specific income tax charge, at the rate of 40% (known as the unauthorised payments charge). This will fall on the scheme member (or, where the payment is made after the member’s death, on the recipient of the payment).

An unauthorised employer payment is also caught by the unauthorised payments charge.

Unauthorised member payment – unauthorised payments surcharge

Where an unauthorised member payment is made where that payment (or the total of such payments set period of no more than 12 months) exceeds a certain proportion of the value of the member’s rights in the scheme, then the individual will also become liable to a further income tax charge called the unauthorised payments surcharge.

The rate of the unauthorised payments surcharge is 15%, based on the amount of the surchargeable unauthorised member payment. So where the surcharge applies the combined rate of income tax charge on the individual in respect of the unauthorised payment is 55%. The surcharge liability is on the scheme member in respect of whom the surchargeable unauthorised member payment is made (or, where the surchargeable unauthorised member payment is made after the member’s death, on the recipient of the payment).

The more details about the taxation of unauthorised member payments can be found in RPSM04104500 and RPSM04104600.

The individual may in certain conditions apply to be discharged to their liability to the unauthorised payments surcharge – see RPSM04104780.

The payment of an unauthorised member payment does not trigger a lifetime allowance test; it is not a benefit crystallisation event. So where the individual’s lifetime allowance has been exceeded, such a payment will not realise a chargeable amount.

Scheme sanction charge

The scheme administrator may also have to pay a scheme sanction charge on the unauthorised member payment – see RPSM09100190.