Unauthorised payments to, or in respect of a person who is or has been, a member or sponsoring employer of a scheme are payments that are neither
- an authorised member payment, nor
- an authorised employer payment.
This also includes payment to a person who is connected to a member, a former member, a sponsoring employer or a former sponsoring employer if they fall within the definition of section 839 ICTA 1988. Payment in this context has a broad meaning. The definition of a payment includes:
- a transfer of assets, and
- any other transfer of money’s worth.
So a payment could include the following:
- Giving a pension scheme asset, e.g. shares, to an individual or other person
- Selling a pension scheme asset for less than it is worth (this is a transfer of value or money’s worth to the recipient)
- The pension scheme buying an asset for more than its market value (this is a transfer of money’s worth to the seller)
This is not meant to be a complete list of payments. Unauthorised payments fall into two categories:
- unauthorised member payments, and
- unauthorised employer payments.
The payment of unauthorised payments will generate up to three tax charges.
- The unauthorised payments charge
An income tax charge at a rate of 40%, based on the value of the unauthorised payment
- The unauthorised payments surcharge
Where unauthorised payments go above a set amount (currently 25% of the member’s fund) in a set period (12 month rolling cycle) an additional income tax charge at a rate of 15% will be due, based on the value of the unauthorised payment.
The scheme sanction charge
An income tax charge on the scheme administrator in respect of certain unauthorised payments in addition to the other two tax charges. The tax is due at a rate of 40%, based on the value of the payment. However, the rate may be reduced to as low as 15% where the unauthorised payments charge has been paid.