RPSM05102140 - Technical Pages: Contributions and tax relief: Employer contributions: Restricting tax relief

When tax relief may be restricted

[s196A] [The Registered Pension Schemes (Restriction of Employers’ Relief) Regulations 2005 - SI 2005/3458]

HMRC has the power to restrict tax relief on employer contributions paid in respect of members where

• any of the benefits which the member may receive from a registered pension scheme are dependent on the non payment of a benefit that the member was expecting to receive from an employer financed retirement benefits scheme.
• payment of benefits to the member from an employer financed retirement benefits scheme would reduce the transfer value of any rights in a registered pension scheme.

The details of when and how such a restriction will take place are set out in the Registered Pension Schemes (Restriction of Employers’ Relief) Regulations 2005.

To establish the tax relief restriction on the employer’s contributions in respect of a member, the pension input amount for each of the member’s arrangements under the scheme is calculated in relation to the employer’s period of account in which the contributions are paid. The amount of the restriction on the relief is an amount equal to the aggregate of the pension input amounts for the period of account in question in respect of each arrangements under the scheme relating to the member.

Where the pension input period is being calculated in the case of cash balance arrangements and defined benefit arrangements, the amount of any relievable pension contributions paid by or on behalf of the member during the period of account in question is deducted from the closing value of the pension input amount. In the case of the other money purchase arrangements, the pension input amount is established by taking into account only the employer’s contributions paid in respect of the member during the period of account in question.