- Value shifting from pension scheme in favour of member/employer/connected person: deemed unauthorised payment

​

General rule

- If:

(1) A relevant event occurs.

(2) The relevant event occurs in a way that differs from what might be expected between arm's length parties.

(3) In connection with that relevant event, the value of an asset held for the purposes of the pension scheme is reduced or a liability is increased.

(4)  The value of an asset held by/for the benefit of person is increased or a liability is reduced for the benefit of a person.

(5)  That person is/was a member or sponsoring employer or connected with either. 

- Then: the registered pension scheme is treated having made an unauthorised payment to that person (s.174 (member); s.181 (employer)).

- Member deceased: payment treated as in respect of member but to person holding asset or liability (s.174(2)).

- Deemed payment is based on difference to what might be expected if parties to transaction were at arm's length (s.174(4)).

​​​

Connected persons

- An increase in value/reduction of liability for a person connected with a member/sponsoring employer etc. is treated as for the benefit of the member/sponsoring employer (s.161(7)).

- If member/employer is dead, test connection at date of death.

- Connected person - see ITA 2007, s.993.

​

Relevant events

- Change in the value of a currency.

- Creation, exercise, failure to exercise, alteration, release etc. of  any power, right, option or liability relating to assets or liabilities of the scheme etc. (s.174(3), s.181(2)). 

- Examples (PTM133700):

- change of rights attached to shares (e.g. to exclude right to dividend).

- altering the rights on a lease (e.g. to increase rent on lease of property to scheme).

- releasing a restrictive covenant in lease to member.

- No charge if transaction is arm's length (e.g. ordinary rent review on commercial terms).​​

​

Tax charges:

- Unauthorised payment charge (s.208).

- Scheme sanction charge on administrator (s.239). 

​

Legislation: FA 2004, s.161; s.174; s.181; 

Cases: 

HMRC manuals: 

PTM133700 - Unauthorised payments: deemed or specific situations that are unauthorised payments: value shifting; 

Commentary: 

See also:

​