RPSM07400110 - Employer 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 payments 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 accountable for this charge.

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

Loans

Loans made to sponsoring employers that do not meet all of the five tests will be treated as unauthorised payments and it will be the employer who will be liable to a tax charge. This includes a “debt waiver” see RPSM07103040.

Any loans made to members or persons connected with a member will be treated as an unauthorised payment and in these cases it will be the member who will be liable to the tax charge. This charge will apply if the employer is not a sponsoring employer of an occupational pension scheme and is connected to the member.

Sale or purchase of an asset

If a scheme sells something to an employer, or buys something from an employer, the price should be paid at “market value”. This means the price that the assets would fetch if sold on the open market.

If an employer sells an asset to the scheme for more than it is worth, or the scheme sells an asset to the employer for less than it is worth, the difference between the amount paid and the market value is treated as an unauthorised payment. The unauthorised payment will be charged on the employer.

For further details see RPSM07102130 onwards.

Value shifting

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

For further details see RPSM07106010 onwards.

2) A scheme sanction charge

This is 40% of any unauthorised payment 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.

3) An unauthorised payments 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.

Glossary ( RPSM20000000)