BeeHive > BeeLines > 2009 > May > HMRC Pension Schemes Newsletter #37
HMRC Pension Schemes Newsletter #37
Hmm! No sooner do I go away on my hols than the ever busy HMRC people pop out yet another of their very helpful newsletter updates, thus disrupting my carefully laid BeeHive plans for the week. Ms Bruun, as usual, spotted it right away and thought we ought to get it to you all so you can read it over the weekend. I agree with that so here it is directly from the coast of Barcelona...
8 May 2009
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Source: www.hmrc.gov.uk
Any research and analysis has been provided by us for our own purposes and the results of it are being made available only incidentally.
Pension Schemes Newsletter 37
8 May 2009
Contents
- Budget 2009
- HMRC responds to customer concerns
- Clarifying HMRC’s position on employers contributions that include asset transfers
- Protection of low pension ages – transfers of crystallised rights
- Contact us
Budget 2009
The 2009 Budget on 22 April 2009 contained a number of announcements in connection with pension savings.
The main announcement was about the Government’s intention to restrict tax relief for pension savings for those with income of £150,000 or more, starting from April 2011. Relief will be tapered away so that for those with income over £180,000 it is worth 20 per cent, the same as to a basic rate taxpayer.
Also announced was the immediate introduction of anti-forestalling legislation in this year’s Finance Bill, to apply from 22 April 2009.
Further information about these measures can be found on the HMRC website in
Technical Guidance Note on HMRC Budget 2009 site (PDF 300K)
Individuals Guidance Note on HMRC Budget 2009 site
Scheme Administrator Guidance Note on HMRC Budget 2009 site
Draft legislation (PDF 0.98MB)
There were also a number of other announcements relating to:
- the pension tax rules in connection with the Financial Assistance Scheme and the Financial Services Compensation Scheme
- general regulation making powers and the powers to vary rates of pension tax charges
For further information see Budget Notes BN01, BN48 and BN49
HMRC responds to customer concerns
In response to concerns raised by our customers we have developed the following statements following discussions with parts of the pensions industry. These statements are intended to help pension schemes in the current difficult financial circumstances by explaining how we will apply key pieces of tax legislation.
Re-structuring borrowing/Re-mortgaging
We are aware of concerns raised by schemes with money purchase arrangements that already had, or were close to, the maximum permitted pre A-Day levels of borrowing at A-Day. It has been suggested they are finding the 50 per cent per cent borrowing limit in S182 FA04 to be a barrier to commercial refinancing arrangements and the limit could therefore lock schemes into uneconomic borrowing.
Setting the level of authorised borrowing at 50 per cent of the value of the arrangements (or corresponding levels for other types of arrangement) provides a single, simple rule for all registered pension schemes. It is intended to strike a sensible balance between the desire to allow pension schemes freedom to choose to take a certain amount of risk in their investment strategy and the need to guard against excessive borrowing so that the objective of ensuring that the scheme is able to pay out a secure income for life to its members is not compromised.
There is no transitional legislation dealing with borrowing because the 50 per cent borrowing limit applies only when the pension scheme borrows an amount on or after 6 April 2006.
There is a deemed scheme chargeable payment where the sum of the amounts previously borrowed (less amounts repaid) and the amount proposed to be borrowed is greater than 50 per cent of the value of the arrangement. However there has been some uncertainty about when this test is to be applied by schemes that already have borrowing. We are content to operate this rule as an arithmetical test, so a replacement or renegotiation of existing borrowing, including pre A-Day borrowing, will not give rise to a scheme chargeable payment unless there is an increase in the total amount borrowed.
In practice, this should mean that taking out a new loan to repay existing borrowing should not trigger a scheme sanction charge. Similarly an extension of the repayment period or a change in the rate of interest should not, alone, be a cause for a 50 per cent test.
There will, however, have to be a 50 per cent test under S182 where interest due has not been paid on existing borrowing and the total amount outstanding is replaced by a newly drawn-up borrowing agreement such that the interest has become part of the new amount of borrowing.
Security/charging orders
We have been made aware that schemes that had made loans secured over taxable property were wary of applying for charging orders to recover their debts because HMRC might regard the order as the acquisition of a right over taxable property, thus giving rise to unauthorised payment charges.
The purpose of the taxable property provisions in Schedule 29A FA04 is to remove the tax advantages for member-directed pension schemes of investing in taxable property. It does this, for example, by imposing tax charges that recoup any tax relief given on contributions used to acquire such property. To be effective the provision applies not only to forms of indirect investment in taxable property that are a close proxy for direct investment, but also to a wide range of other forms of indirect investment that could be used to get around the new rules for taxable property.
This article deals specifically with charging orders. A charging order is an order of the court placing a charge over the judgment debtor’s property in the amount that is owed. If the property is sold the charge has to be paid out of the proceeds before any of the proceeds of sale can be given to the judgment debtor, but after other charges, such as a mortgage, are paid first.
Paragraph 14(1)(a) treats the scheme as holding an interest in taxable property where it 'holds the property or any estate, interest, right or power in or over the property'. Hitherto our approach to charging orders has been that putting in place a charge does not give rise to an interest in taxable property, but enforcing that charge would. However, we have been reconsidering the point and we now consider that the better view is that putting in place the charging order immediately creates an interest in taxable property. From that point the scheme has a right over the property and there is no essential change in the scheme’s interest when the charge is enforced and payment is received. This may be distinguished from the case in which enforcement of a charge over the property leads to the scheme obtaining additional rights, such as a right of occupation.
Acquiring an interest in taxable property means that the scheme is treated as having made an unauthorised payment. The amount of the unauthorised payment is determined by paragraph 32(2) and consists of
- the amount of consideration given for the interest, plus
- the amount of any fees or costs in connection with the acquisition
In our view no consideration, in money or money’s worth, directly or indirectly, would be given for the acquisition of a charging order over taxable property. A charging order is an order of the court applied for by a creditor. There may, of course, be fees or costs to pay to obtain the charging order. If so, any sums paid will give rise to an unauthorised payment.
On this analysis unauthorised payment charges are likely to be very small and so unlikely to be an obstacle to seeking or enforcing a charge to recover a debt.
Re-negotiating leases
We have been made aware of several cases in which a scheme has leased property to a connected party and would like to renegotiate the terms of the lease, either to recognise that the lessee might be in financial difficulty or because the property market is such that a lower rent might now be negotiated between independent parties acting at arm’s length. HMRC were asked to agree that a renegotiation carried out on commercial terms would not give rise to unauthorised payment charges.
We are content to accept this in principle. We would expect a pension scheme to retain evidence to demonstrate that its dealings with connected tenants are conducted in the same way as it would deal with unconnected tenants. The duty of the pension scheme administrators is to act in the best interests of pension scheme members.
This approach has practical implications for the scheme administrators.
Many leases contain upward-only rent reviews. Where this is the case administrators should take professional advice if they decide it is appropriate to renegotiate the terms of the lease. That advice should consider rents and other lease terms in relation to similar properties in the current market. If the terms of the lease permit a reduction in rent the administrator should take professional advice before agreeing a revised rent.
In each case the administrators may want to take into account the financial circumstances of the tenant and the prospects of getting a new tenant in the current financial climate. Again, professional advice should be obtained. Where the tenant is a company we would not expect to see dividends being paid to shareholders where the company is being treated as unable to afford to pay the full amount of rent that is legally due.
The key requirement is that if we ask for an explanation of a transaction between the pension scheme and a connected person the administrators should be able to demonstrate that they have taken steps to ensure that they have acted in the best interests of scheme members.
Clarifying HMRC’s position on employer contributions that include asset transfers
The recent update to RPSM05102035 published on 15 April 2009 clarified HMRC’s position on employer contributions that include asset transfers. It provides a clearer and more detailed explanation of how an employer can make a pension scheme contribution that includes an asset transfer.
Protection of low pension ages – transfers of crystallised rights
We have received a number of enquiries as to how the transfer of benefits in payment (crystallised rights) before the normal minimum pension age affects a protected low pension age.
Where an individual with a protected low pension age under a scheme transfers rights out of that scheme protection will only continue in the receiving scheme if the transfer is a block transfer. There is no distinction between uncrystallised and crystallised rights.
If benefits in payment are transferred protection of a low pension age will only continue in the receiving scheme if that transfer is a block transfer. If the transfer is not a block transfer pension age protection will be lost at the point of the transfer. Any benefit payments made under the receiving scheme before normal minimum pension age will be unauthorised payments.
Contact us
If you have any questions about anything to do with tax rules for pensions and you cannot find the answer in the Registered Pension Schemes Manual, please contact us by email or phone our helpline number on Tel 0845 600 2622 (9.00 am to 5.00 pm Monday to Friday) or you can write to us at:
Pension Schemes Services (PSS)
Yorke House
Castle Meadow Road
Nottingham
NG2 1BG
