Tax charges on scheme property expenditure
Recent pension scheme legislation introduced a new tax charge, known as an unauthorised payment charge, on any unauthorised payments. To avoid an unauthorised payment charge, levied at 40%, SSAS trustees must ensure that the scheme acts as a commercial landlord would.
For example, where a connected tenant asks the trustees, as landlords, to pay for work carried out on scheme property, care must be taken to check:
- whether the lease is a fully repairing and insuring one;
- the expense is fully justified.
Usually the lease between the SSAS trustees and the tenant will be drawn up on a fully repairing and insuring basis, in which case the tenant is obliged to undertake and pay for repairs to the scheme property.
For a new build or development work on existing property, it may be possible for the trustees to pay for the work. Before the work can take place, supporting quotations and valuations are required and the trustees will need to appoint a qualified surveyor to consider the proposed work and report on how it will affect:
- the value of the property and whether the increase in value will cover the expenses incurred;
- the revised rent once the work has been completed;
- the marketability of the property.
Before agreeing any expenditure on scheme property, the trustees should always contact their usual Rowanmoor Pensions administrator or consultant or the Rowanmoor Pensions Technical Team on 08445 440 440, who can give further advice on the potential risk of incurring an unauthorised payment charge on individual cases.
4 July 2006