- value shifting involving pension scheme assets eg the pension purchases a commercial property at above market value from the member or the member's company. This shifts value from the pension to the member (or sponsoring employer)
- investment in taxable property eg the pension purchases a residential property
- benefits or rights under a registered pension scheme are assigned, surrendered or re-allocated eg. benefit payments paid to someone other than the member
- benefit in kind for a member or connected person arising from a pension asset eg the member's company uses a property owned by the pension without paying rent at a commercial rate
- a payment or loan is made to a connected party of the member eg the pension makes a loan to the member's spouse
- unallocated employer contributions are allocated to a member beyond a certain level (occupational schemes only) eg the allocation to a member connected with the employer is above that which would be made for a non-connected member
- recycling of pension commencement lump sum (PCLS) eg a member who has £45,000 relevant earnings takes £25,000 PCLS and immediately uses it to make a one-off additional net contribution of £25,000 (£31,250 gross)
- A loan is made to a sponsoring employer (occupational schemes only) which does not meet the tax rules eg a Ssas makes a loan to the sponsoring employer but no security is put in place
What are the implications of making an unauthorised payment?
When an unauthorised payment occurs up to three separate tax charges can arise.
- Unauthorised payment charge of 40 per cent
- Unauthorised payment surcharge of 15 per cent
- Scheme sanction charge of between 15-40 per cent
These are explained in more detail below.
It is important to note that all three of these charges may be payable in relation to a single unauthorised payment.
The unauthorised payment charge
The unauthorised payment charge is a flat rate of 40 per cent. This will usually be payable by the member, but in occupational schemes the sponsoring employer will be liable if they are the recipient of the unauthorised payment or the benefit leading to the charge arising.
The unauthorised payment charge is a freestanding charge, which means it cannot be offset against any other losses the taxpayer has.
The unauthorised payment surcharge
The unauthorised payment surcharge arises when the total unauthorised payments in the reference period relating to a member exceed 25 per cent of the member’s rights in that pension scheme. When applicable the rate of the charge is 15 per cent.
The charge is payable by the same party as the unauthorised payment charge – so usually the member, but in certain circumstances in occupational schemes this will be the sponsoring employer.
