RPSM09100190 - Technical Pages: Member benefits: Overview: Payments: The scheme sanction charge

Taxation of unauthorised payments: the scheme sanction charge

The making of an unauthorised member payment will also lead to a separate charge on the scheme administrator called the scheme sanction charge, unless the payment falls within narrowly defined exemptions. These exceptions are laid out in RPSM04104835 onwards.

The rate of charge on the scheme administrator is 40%, although some credit will be given against this charge taking into account any unauthorised payments charge actually paid by the member (but not any unauthorised payments surcharge). This credit or deduction to the charge cannot reduce the scheme sanction charge below 15% of the unauthorised member payment (so the deduction cannot be more than 25% of the unauthorised payment). RPSM04104820 explains in more detail how this deduction is calculated.

As such, where a scheme sanction charge arises, the effective total rate of charge on the unauthorised member payment will be at least the same as the rate of lifetime allowance charge on lump sum payments - 55%. This will comprise of a 40% unauthorised payments charge and, assuming this charge is paid in full by the individual, a 15% scheme sanction charge (payable by the scheme administrator). In addition there may also be a 15% unauthorised payments surcharge imposed on the member (see above).

The scheme administrator may in certain conditions apply to be discharged to their liability to the above scheme sanction charge through ‘good faith’ provisions provided for in the legislation – see RPSM04104870.