Unauthorised payments
A payment by a SIPP or SSAS that is not authorised is an ‘unauthorised payment’ and is likely to give rise to tax charges on the member(s) and the pension scheme (via the Scheme Administrator), and in the case of a SSAS, the sponsoring employer. There will also be a tax charge where a pension scheme exceeds the borrowing limit.
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 if 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.