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HMRC internal manual

Pensions Tax Manual

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HM Revenue & Customs
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Annual allowance: tax charge: scheme pays: when scheme does not have to pay

Glossary PTM000001
   

 

Discharge of the scheme administrator’s liability
Where there has been a transfer of all the sums and assets held under the scheme before the notice is given to the scheme administrator

Sections 237D and 237E Finance Act 2004

The scheme administrator will have to pay the member’s annual allowance liability provided:

  • the member’s total annual allowance charge liability by reference to the annual allowance for the tax year exceeds £2,000 (members with an annual allowance charge liability exceeding £2,000 by reference to the money purchase annual allowance cannot require a scheme to pay if their liability by reference to the annual allowance would have been £2,000 or less)
  • the member’s pension input amount for the pension scheme for the same tax year exceeded the annual allowance amount in section 228 Finance Act 2004 (for example, for tax year 2016-17, this means more than £40,000 - i.e. the tapered annual allowance and/or money purchase annual allowance is ignored), and
  • the member has given a notice to the scheme administrator requiring the scheme to pay the liability and this notice has been received by the scheme on time.

Note - for annual allowance purposes only, tax year 2015-16 is split into two ‘mini’ tax years; the pre-alignment tax year (6 April 2015 to 8 July 2015) and the post-alignment tax year (9 July 2015 to 5 April 2016).  For tax year 2015-16, the condition in the second bullet above is met if the member’s pension input amount for the pre and post-alignment tax years for the pension scheme exceeded £40,000.

A scheme administrator can refuse to pay a member’s annual allowance charge even though they meet the conditions to be able to require the scheme to pay as set out below.

A scheme administrator can refuse to pay in the following circumstances:

  • the pension scheme is being assessed by the Pension Protection Fund at the time the member requires it to pay
  • the member has already required the scheme administrator to pay but before the tax is paid to HMRC the scheme starts to get assessed by Pension Protection Fund
  • the pension scheme would be unable to make an adjustment to the member’s benefits in the scheme to take account of the tax paid because the benefits they would otherwise have needed to adjust to take account of the tax paid include ‘contracted-out’ rights (GMPs and/or protected rights) that are subject to section 159 of the Pension Schemes Act 1993 or section 155 of the Pension Schemes (Northern Ireland) Act 1993.

Discharge of the scheme administrator’s liability

In specific circumstances the scheme administrator may also apply to HMRC for a discharge of their liability to pay the member’s annual allowance charge. The grounds for doing this are:

  • that to do so would substantially harm the interests of the members of the scheme, or
  • it would not otherwise be reasonable for the scheme to pay the member’s charge (for example, where the value of the member’s benefits in the scheme have fallen and there are insufficient funds in the scheme to pay the amount of tax the member has asked the scheme to pay).

HMRC will notify the scheme administrator of their decision and whether the scheme will be discharged of their liability for the annual allowance charge. Where the scheme administrator is discharged of their liability then the member will become solely liable to the annual allowance charge.

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Where there has been a transfer of all the sums and assets held under the scheme before the notice is given to the scheme administrator

Transfers on or after 28 January 2015

Where a member:

  • meets the requirements that would mean that they could notify their pension scheme (‘pension scheme 1’) that they require them to pay their annual allowance charge, but
  • before they can give that notice all the benefit rights for the member are transferred to another pension scheme (‘pension scheme 2’)

the member can no longer require pension scheme 1 to pay the annual allowance charge.

Instead, the member can require pension scheme 2 to pay the annual allowance charge.

The member’s notice to pension scheme 2 must be given on time - i.e. the same deadline that would have applied for pension scheme 1 had the transfer not occurred.

Transfers before 28 January 2015

The position for transfers that took place before 28 January 2015 was more restricted.

The same conditions described immediately above applied but with the additional requirement that all of the benefit rights for the member in pension scheme 1 had to transfer to pension scheme 2 with all of the benefits rights of all of the other members of pension scheme 1 (for example, following an employer re-organising its pension schemes).