RPSM13102188 - Technical Pages: International: Application of charges to non-UK scheme: Member payment charges: Taxable property unauthorised payment charge: modifications: valuation of property in special circumstances

Taxable property unauthorised payment charge: valuation of property in special circumstances

[The Pension Schemes (Application of UK Provisions to Relevant Non-UK Schemes) (Amendment) Regulations 2006 - SI 2006/1960] 

The Pension Schemes (Application of UK Provisions to Relevant Non-UK Schemes) (Amendment) Regulations 2006 also modify the application of paragraphs 29 and 31 of schedule 29A (see RPSM04301100) where

• an overseas scheme acquires an interest in taxable property,
• the whole or part of the consideration for the acquisition is rent, and
• the interest is acquired in one of three circumstances.

The first circumstance is that the scheme’s interest in taxable property is acquired because the scheme or another person comes to hold the interest directly.

The second circumstance is that the scheme’s interest in taxable property is acquired because the scheme or another person comes to hold an interest in a person who already holds the interest directly or indirectly.

The third circumstance is that the scheme’s interest in taxable property is treated as acquired by the scheme in one of the following ways

• the scheme holds an interest in property which becomes taxable property other than by reason of its conversion or adaptation as residential property, or
• the scheme holds an interest in taxable property indirectly and its interest in a vehicle through which it holds that interest increases. But that does not include the situation where that increase is not the result of an actual acquisition (for example, where the scheme’s proportionate shareholding in a vehicle increases because other shareholders cash in their shares), subject to one exception. The exception is where the increase is part of an arrangement one of the main purposes of which is to reduce the unauthorised payment treated as arising on the original acquisition of the interest in the taxable property.

In any of these three circumstances the amount of the consideration (or the part that is rent) will not be the relevant rental value of the property.

Instead the total payment(s) of rent during a year will be treated, for the purpose of the taxable property provisions, as if the overseas scheme were being granted a lease for the period for which the rent is paid, in consideration of the rent so paid. The amount of the consideration will be based therefore on a calculation of the capitalised cost of the lease rentals in these circumstances.