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Finance Act 2004

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This is the original version (as it was originally enacted).

Unauthorised payments charge

208Unauthorised payments charge

(1)A charge to income tax, to be known as the unauthorised payments charge, arises where an unauthorised payment is made by a registered pension scheme.

(2)The person liable to the charge—

(a)in the case of an unauthorised member payment made before the member’s death, is the member to or in respect of whom the payment is made,

(b)in the case of an unauthorised member payment made after the member’s death, is the recipient, and

(c)in the case of an unauthorised employer payment, is the sponsoring employer to or in respect of whom the payment is made.

(3)If more than one person is liable to the unauthorised payments charge in respect of an unauthorised payment, those persons are jointly and severally liable to the charge in respect of the payment.

(4)A person is liable to the unauthorised payments charge whether or not—

(a)that person,

(b)any other person who is liable to the unauthorised payments charge, and

(c)the scheme administrator,

are resident, ordinarily resident or domiciled in the United Kingdom.

(5)The rate of the charge is 40% in respect of the unauthorised payment.

(6)The Treasury may by order increase or decrease the rate for the time being specified in subsection (5).

(7)An unauthorised payment may also be subject to—

(a)the unauthorised payments surcharge under section 209, and

(b)the scheme sanction charge under section 239.

(8)An unauthorised payment is not to be treated as income for any purpose of the Tax Acts.

209Unauthorised payments surcharge

(1)A charge to income tax, to be known as the unauthorised payments surcharge, arises where a surchargeable unauthorised payment is made by a registered pension scheme.

(2)“Surchargeable unauthorised payments” means—

(a)surchargeable unauthorised member payments (see section 210), and

(b)surchargeable unauthorised employer payments (see section 213).

(3)The person liable to the charge—

(a)in the case of a surchargeable unauthorised member payment made before the member’s death, is the member in respect of whose arrangement the payment was made,

(b)in the case of a surchargeable unauthorised member payment made after the member’s death, is the recipient, and

(c)in the case of a surchargeable unauthorised employer payment, is the sponsoring employer to or in respect of whom the payment was made.

(4)If more than one person is liable to the unauthorised payments surcharge in respect of a surchargeable unauthorised payment, those persons are jointly and severally liable to the surcharge in respect of the payment.

(5)A person is liable to the unauthorised payments surcharge whether or not—

(a)that person,

(b)any other person who is liable to the unauthorised payments surcharge, and

(c)the scheme administrator,

are resident, ordinarily resident or domiciled in the United Kingdom.

(6)The rate of the charge is 15% in respect of the surchargeable unauthorised payment.

(7)The Treasury may by order increase or decrease the rate for the time being specified in subsection (6).

210Surchargeable unauthorised member payments

(1)This section identifies which unauthorised member payments made by a registered pension scheme in respect of an arrangement relating to a member under the pension scheme are surchargeable.

(2)If the surcharge threshold is reached before the end of the period of 12 months beginning with a reference date, each unauthorised member payment made in respect of the arrangement in the surcharge period is surchargeable.

(3)The surcharge period is the period—

(a)beginning with the reference date, and

(b)ending with the day on which the surcharge threshold is reached.

(4)The first reference date is the date on which the pension scheme first makes an unauthorised member payment in respect of the arrangement.

(5)Each subsequent reference date is the date, after the end of the previous reference period, on which the pension scheme next makes an unauthorised member payment in respect of the arrangement.

(6)The previous reference period is the period of 12 months beginning with the previous reference date or, if the surcharge threshold is reached in that period, is the surcharge period ending with the date on which it was reached.

(7)The surcharge threshold is reached if the unauthorised payments percentage reaches 25%.

(8)The unauthorised payments percentage is the aggregate of the percentages of the pension fund used up by each unauthorised member payment made by the pension scheme in respect of the arrangement on or after the reference date.

(9)The percentage of the pension fund used up on the occasion of an unauthorised member payment is—

Formula - (UMP divided by VR) multiplied by 100

where—

  • UMP is the amount of the unauthorised member payment, and

  • VR is an amount equal to the value of the member’s rights under the arrangement when the unauthorised payment is made (or, if the unauthorised payment is made after the member’s death, at the date of the member’s death).

(10)The value of the member’s rights under the arrangement on that date is the aggregate of—

(a)the value of the member’s crystallised rights under the arrangement on that date, calculated in accordance with section 211, and

(b)the value of the member’s uncrystallised rights under the arrangement on that date, calculated in accordance with section 212.

211Valuation of crystallised rights for purposes of section 210

(1)The value of the member’s crystallised rights under the arrangement on any date is the aggregate of—

(a)the value of each scheme pension or lifetime annuity to which the member has an actual (rather than a prospective) entitlement under the arrangement on that date, and

(b)the aggregate of the amount of the sums, and the market value of the assets, representing the member’s unsecured pension fund or alternatively secured pension fund in respect of the arrangement on that date (if any).

(2)The value of a scheme pension or lifetime annuity is—

RVF × ARP

where—

  • RVF is the relevant valuation factor (see section 276), and

  • ARP is an amount equal to the annual rate of the pension or annuity on the date.

212Valuation of uncrystallised rights for purposes of section 210

(1)Rights are uncrystallised if the member is not entitled to the present payment of benefits in respect of the rights.

(2)The member is to be treated as entitled to the present payment of benefits in respect of the sums and assets representing the member’s unsecured pension fund or alternatively secured pension fund.

(3)The value of the member’s uncrystallised rights under the arrangement on any date is to be calculated—

(a)in accordance with subsection (4) if the arrangement is a cash balance arrangement,

(b)in accordance with subsection (5) if the arrangement is a money purchase arrangement other than a cash balance arrangement,

(c)in accordance with subsection (6) if the arrangement is a defined benefits arrangement, and

(d)in accordance with subsection (7) if the arrangement is a hybrid arrangement.

(4)If this subsection applies, the value of the member’s uncrystallised rights under the arrangement on the date is the amount which would, on the valuation assumptions (see section 277), be available for the provision of benefits in respect of those rights if the member became entitled to benefits in respect of those rights on the date.

(5)If this subsection applies, the value of the member’s uncrystallised rights under the arrangement on the date is the aggregate of—

(a)the amount of such of the sums held for the purposes of the arrangement on the date as represent those rights, and

(b)the market value of such of the assets held for the purposes of the arrangement on the date as represent those rights.

(6)If this subsection applies, the value of the member’s uncrystallised rights under the arrangement on the date is—

Formula - (RVF multiplied by ARP) plus LS

where—

  • RVF is the relevant valuation factor (see section 276),

  • ARP is the annual rate of pension to which the member would, on the valuation assumptions, be entitled under the arrangement on the date if, on the date, the member acquired an actual (rather than a prospective) right to receive a pension in respect of the rights, and

  • LS is the amount of any lump sum to which the member would, on the valuation assumptions, be entitled under the arrangement on the date (otherwise than by way of commutation of pension) if, on the date, the member acquired an actual (rather than a prospective) right to payment of a lump sum in respect of the rights.

(7)If this subsection applies, the value of the member’s uncrystallised rights under the arrangement on the date is—

(a)if each of subsections (4), (5) and (6) is relevant, the greatest of the values of the rights calculated in accordance with each of those subsections, or

(b)if only two of those subsections are relevant, the greater of the values of the rights calculated in accordance with each of the two subsections.

(8)Subsection (4) is relevant if, in any circumstances, cash balance benefits may be provided to or in respect of the member under the arrangement.

(9)Subsection (5) is relevant if, in any circumstances, money purchase benefits other than cash balance benefits may be provided to or in respect of the member under the arrangement.

(10)Subsection (6) is relevant if, in any circumstances, defined benefits may be provided to or in respect of the member under the arrangement.

213Surchargeable unauthorised employer payments

(1)This section identifies which unauthorised employer payments made by a registered pension scheme to or in respect of a sponsoring employer are surchargeable.

(2)If the surcharge threshold is reached before the end of the period of 12 months beginning with a reference date, each unauthorised employer payment made to or in respect of the employer in the surcharge period is surchargeable.

(3)The surcharge period is the period—

(a)beginning with the reference date, and

(b)ending with the day on which the surcharge threshold is reached.

(4)The first reference date is the date on which the pension scheme first makes an unauthorised employer payment to or in respect of the employer.

(5)Each subsequent reference date is the date, after the end of the previous reference period, on which the pension scheme next makes an unauthorised employer payment to or in respect of the employer.

(6)The previous reference period is the period of 12 months beginning with the previous reference date or, if the surcharge threshold is reached in that period, is the surcharge period ending with the date on which it was reached.

(7)The surcharge threshold is reached if the unauthorised payments percentage reaches 25%.

(8)The unauthorised payments percentage is the aggregate of the percentages of the pension fund used up by each unauthorised employer payment made by the pension scheme to or in respect of the employer on or after the reference date.

(9)The percentage of the pension fund used up on the occasion of an unauthorised employer payment is—

Formula - UEP divided by AA) multiplied by 100

where—

  • UEP is the amount of the unauthorised employer payment, and

  • AA is an amount equal to the aggregate of the amount of the sums and the market value of the assets held for the purposes of the pension scheme at the time when the unauthorised employer payment is made.

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