RPSM13102195 - Technical Pages: Application of charges to non-UK schemes: Member payment charges and taxable property unauthorised payment charge: Attributing payments to relevant transfer fund and taxable asset transfer fund

Attributing payments to relevant transfer fund and taxable asset transfer fund

[Paras 3(6) & 4(4), Sch 34][The Pension Schemes (Application of UK Provisions to Relevant Non-UK Schemes) Regulations 2006 - SI 2006/207] [The Pension Schemes (Application of UK Provisions to Relevant Non-UK Schemes) (Amendment) Regulations 2006 - SI2006/1960] 

Rule 1

Rule 1 applies where an unauthorised payment is treated as made by a relevant non-UK scheme that is an investment-regulated pension scheme to a transfer member (see RPSM13102160) by virtue of section 174A and by regulations under paragraph 37 of schedule 29A or under paragraph 7A of schedule 34 (see RPSM13102184). That occurs on the acquisition or improvement of taxable property or on the conversion or adaptation of property to become residential property (RPSM04301100). The rule is that

1. the payment will be treated as made out of the member’s relevant transfer fund and taxable asset transfer fund, but
2. the interest in taxable property, in respect of which the unauthorised payment is treated as made, will represent the payment and - as an “appropriated asset” - will form part of the member’s relevant fund and taxable asset transfer fund up to an amount equal to the amount of that payment.

Under this rule the unauthorised deemed payment is treated as made from the member’s relevant transfer fund and taxable asset transfer fund. There will be a taxable property unauthorised payment charge on the deemed payment up to the amount of the member’s taxable asset transfer fund. But the amount of payment which is chargeable (the appropriated asset) will go into those funds. So, in effect, the member’s relevant transfer fund and taxable asset transfer fund will not be reduced by that payment.

Rule 2

Rule 2 applies if the scheme transfers that appropriated asset (or an interest in a vehicle through which the scheme holds the interest in the taxable property indirectly), or part of it, to another pension scheme. That transfer will be treated as a transfer of the whole, or part, of the member’s relevant transfer fund and taxable asset transfer fund - limited to the amount of the unauthorised payment - to that other scheme. If appropriate, it will fall within the member’s taxable asset transfer fund under the receiving scheme.

Rule 3

Rule 3 applies if the scheme disposes of the appropriated asset (or an interest in a vehicle through which the scheme holds the interest in the taxable property indirectly), or part of it, otherwise than by transferring it to another pension scheme. Any other property which directly or indirectly represents proceeds of either of those interests - limited to the amount of the unauthorised payment - will form part of the member’s relevant transfer fund and taxable asset transfer fund under the transferring scheme.

Rule 4

Rule 4 applies to payments made by the scheme to, or in respect of, the member other than

• a transfer covered by rule 2 or rule 3, or
• an unauthorised deemed payment covered by rule 1.

So far as the member’s relevant transfer fund and taxable asset transfer fund are not represented by appropriated assets:

1. where the member has both a relevant transfer fund and a taxable asset transfer fund, and the amount of the former exceeds the amount of the latter, such payments will - to the extent of that excess - be treated as made out of, and as reducing, their relevant transfer fund (but not their taxable asset transfer fund),and subject thereto
2. such payments are made out of the member’s relevant transfer fund and taxable asset transfer fund in priority to any other fund under that scheme, and reduce (but not below nil) the amount of the relevant transfer fund and taxable asset transfer fund.

If there are any appropriated assets in the member's relevant transfer fund and taxable asset transfer fund then they will be unaffected by this rule and will be treated as remaining therein.