Tax charges

 

Tax situation

Tax charge

Unauthorised member payment 40% of the amount of the unauthorised payment
Payable by the member
Unauthorised employer payment (SSAS) 40% of the amount of the unauthorised payment
Payable by the relevant sponsoring employer
Unauthorised payment is more than 25% of the value of the relevant member’s/members’ pension funds Member/sponsoring employer will be liable to a surcharge of 15%
Tax charge on the pension scheme (via the Administrator) Usually 15% of the amount of the unauthorised payment.
However, if the member or sponsoring employer fails to pay the full amount of their tax charges, it could be as much as 40%.

Total tax charges for an unauthorised payment could be as high as 70% of the amount of the unauthorised payment.

The tax charge on any borrowing that exceeds the 50% limit is 40% of the excess.

Examples of unauthorised payments

 
  • acquisition, directly or indirectly, of taxable property
  • investment in a genuinely diverse commercial vehicle that ceases to be a genuinely diverse commercial vehicle and holds taxable property
  • conversion of commercial property into residential property
  • improvements to residential property that had been legitimately acquired by the pension scheme before the taxable property rules were introduced on 6 April 2006 that increase its value by more than 20%
  • loan to a member or anyone connected with a member, including a company controlled, directly or indirectly, by a member
  • benefit payments to a member before the age of 55 (unless they satisfy the ill health requirements, or have a protected lower pension age)
  • payment of benefits to anyone other than a member while the member is still alive
  • transfer of a member’s pension funds to a pension scheme that is not an HMRC registered pension scheme or a qualifying recognised overseas pension scheme (QROPS)
  • value shifting, i.e. where a pension scheme enters into a transaction that increases the value of an asset or decreases the amount of a liability, of a member or a person connected with a member (and in the case of a SSAS, a sponsoring employer) on anything other than what would normally be expected on arm’s length terms. 

The following are additional examples specific to SSAS:

 
  • loan to the member or anyone connected with a member, including a company controlled, directly or indirectly, by a member (except where the company was also a sponsoring employer of the SSAS and the loan satisfied all of the requirements for a loan to a sponsoring employer)
  • loan from a SSAS to a sponsoring employer that does not satisfy each and every one of the strict requirements for such a loan to be an authorised payment
  • reallocating part or all of a member’s share of a SSAS fund to another member where they are connected with each other.

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