RPSM07200150 - Member Pages: Investments: What tax charges are there on investments?

What tax charges are there on investments?

The main tax charges to consider in relation to a scheme’s investment activity are:

1. The unauthorised payment charge

This equates to 40% of the amount of any unauthorised payment. It is the member or in some instances the employer who is accountable for this charge.

The amount of tax you pay depends on the amount of the unauthorised payment. Below are some examples:

Loans

A registered pension scheme should not make a loan to you (see RPSM07200080). This includes a “debt waiver” see RPSM07103040). If you do receive a loan from a registered pension scheme, the whole amount of the loan is treated as an unauthorised payment.

Sale or purchase of an asset

If a registered pension scheme sells an asset to you or a connected party, or buys an asset from you or a connected party, the price should be paid at “market value”. This means the price that the assets would fetch if sold on the open market.

If you sell an asset to the registered pension scheme for more than it is worth, or the scheme sells an asset to you for less than it is worth, the difference between the amount paid and the market value is treated as an unauthorised payment.

For further details see RPSM07102130 onwards.

Benefit in kind

Registered pension schemes can generally invest in any asset, so sometimes you may be able to use an asset belonging to the scheme, for example living accommodation or vehicles. The cash equivalent of this “benefit in kind” is an unauthorised payment. Your scheme administrator should provide you with details of any unauthorised payments arising from benefits in kind by 7 July following the end of the tax year in which they were made.

This cash equivalent is calculated in the same way as if an employer were providing the benefit in kind to an employee. This includes deducting from the unauthorised payment any amount you pay to the scheme for the use of the asset.

For further details see RPSM07102210 onwards.

Value shifting

If a change in a registered pension scheme investment means that the value moves from the scheme to you without actually creating a payment, the amount of the value shifted out of the scheme may still be treated as an unauthorised payment.

For further details see RPSM07106010 onwards.

2. A scheme sanction charge

This is a separate tax charge of 40% of any unauthorised payment (see 1 above) and is charged on the scheme administrator. Where however an unauthorised payment charge has already been levied in relation to the transaction that has given rise to this charge, a deduction on the scheme sanction charge will be due. This will be the lesser of 25% of the unauthorised payment charge and the tax paid by the member or employer on the unauthorised payment charge. The scheme sanction charge is not due on charges in respect of benefits in kind on non-wasting assets.

3. A scheme surcharge

Where the amount of the unauthorised payment exceeds 25% of the fund value an unauthorised payments surcharge of 15% will also be due. This would bring the total payable by the member or employer in any such instance to 55% of the value of the unauthorised payment.

4. A scheme de-registration charge

This is 40% of the value of the scheme, where exceptionally registration of the scheme is withdrawn. The person liable to account for this charge is the scheme administrator.