Finance Act 2004

Unauthorised payments chargeU.K.

208Unauthorised payments chargeU.K.

(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 [F1made to or in respect of a person before the person's death, is the person,]

(b)in the case of an unauthorised member payment made [F2in respect of a person after the person's] death, is the recipient, and

(c)in the case of an unauthorised employer payment, is the [F3person] 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 residentF4... or domiciled in the United Kingdom.

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

[F5(6)The Treasury may by order amend subsection (5) so as to vary the rate of the unauthorised payments charge.

(6A)An order under subsection (6) may make provision for there to be different rates in different circumstances.]

(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 surchargeU.K.

(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 [F6made to or in respect of a person before the person's death, is the person,]

(b)in the case of a surchargeable unauthorised member payment made [F7in respect of a person after the person's] death, is the recipient, and

(c)in the case of a surchargeable unauthorised employer payment, is the [F8person] 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, F9...

(c)the scheme administrator, [F10and]

[F11(d)the sub-scheme administrator,]

are residentF12... or domiciled in the United Kingdom.

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

[F13(7)The Treasury may by order amend subsection (6) so as to vary the rate of the unauthorised payments surcharge.

(8)An order under subsection (7) may make provision for there to be different rates in different circumstances.]

210Surchargeable unauthorised member paymentsU.K.

(1)This section identifies which unauthorised member payments made by a registered pension scheme [F14to or in respect of a person who is or has been a member of] 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 [F15to or in respect of the person] 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 [F16to or in respect of the person].

(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 [F17to or in respect of the person].

(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 [F18to or in respect of the person] on or after the reference date.

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

(10)The value of the member’s rights under [F20an arrangement on any] 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 210U.K.

(1)The value of the member’s crystallised rights under [F21an 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, F22...

(b)the aggregate of the amount of the sums, and the market value of the assets, representing the [F23member's drawdown pension fund] in respect of the arrangement on that date (if any)[F24, and

(c)the aggregate of the amount of the sums, and the market value of the assets, representing the member's flexi-access drawdown fund in respect of the arrangement on that date (if any).]

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

212Valuation of uncrystallised rights for purposes of section 210U.K.

(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 [F25member's drawdown pension fund] [F26or the member's flexi-access drawdown fund].

(3)The value of the member’s uncrystallised rights under [F27an 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 [F28that is neither a cash balance arrangement nor a collective money purchase arrangement],

(c)in accordance with subsection (6) if the arrangement is a defined benefits arrangement [F29or a collective money purchase 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—

[F30(7)If this subsection applies, the value of the member's uncrystallised rights under the arrangement on the date (“the hybrid value”) is to be calculated by taking the following steps—

• Step 1 In relation to each relevant variety of benefits, calculate (in accordance with the preceding provisions of this section) the value of the member's uncrystallised rights on the date, assuming that benefits of that variety are provided under the arrangement.

• Step 2 The hybrid value is the higher or highest of the amounts determined under step 1.”

(8)For the purposes of this section a variety of benefits is “relevant” in relation to a hybrid arrangement if, in any circumstances, benefits of that variety may be provided under the arrangement.

(9)In this section “variety of benefits” means a variety of benefits specified in section 152(10).]

213Surchargeable unauthorised employer paymentsU.K.

(1)This section identifies which unauthorised employer payments made by a registered pension scheme to or in respect of a [F31person who is or has been 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 [F32person] 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 [F33person].

(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 [F34person].

(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 [F35person] on or after the reference date.

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