RPSM07300120 - Scheme Administrator Pages: Investments: What tax charges are there?

What tax charges are there?

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

1) The unauthorised payment charge

This equates to 40% of the amount of any unauthorised payment. It would be the member or in some instances the employer who would be liable to pay any tax due on this charge. However, the scheme administrator is responsible for making a report of any unauthorised payments on the Registered Pension Schemes Event Report form.

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

Loans
The registered pension scheme should not make a loan to a member or a person/company connected with the member (see RPSM07103010). This includes a “debt waiver” (see RPSM07103040). If a member or connected person does 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 buys or sells an asset from/to a member or person connected with the member, the price paid should be the market value.

If the member sells something to the scheme for more than it is worth, or the scheme sells something to the member 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 RPSM07102110 onwards.

Benefit in kind
Registered pension schemes can generally invest in any asset, so sometimes you may allow a member or a member of their family 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. The scheme administrator should provide the member with details of any unauthorised payments arising from benefits in kind before 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 rent you pay to the scheme for the use of the asset.

For further details see RPSM07102210 onwards.

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

Examples of value shifting can be found at RPSM07102140.

2) A scheme sanction charge

This is 40% of the unauthorised payment and is payable by the scheme administrator. Where however an unauthorised payments charge has already been levied in relation to the transaction that has given rise to this charge, a deduction on the scheme sanction charge may 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 and non-wasting assets.

3) An unauthorised payment 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) Scheme de-registration charge

This is 40% of the value of the scheme, where registration of the scheme is withdrawn. The scheme administrator is liable for any tax due when a scheme is de-registered.