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HMRC internal manual

Pensions Tax Manual

Unauthorised payments: deemed or specific situations that are unauthorised payments: benefits in kind: overview

Glossary PTM000001

Exclusions from charge


Section 173 Finance Act 2004

Because of the tax consequences of investing in taxable property (see PTM125000) it is anticipated that there will be limited opportunity for members to use scheme assets. The following rules do not apply in the case of taxable property held by an investment-regulated pension scheme.

However other schemes may still hold assets that will be capable of being used by a person who is, or has been, a scheme member. If, however, such persons were allowed to use them tax-free this would have a number of unacceptable consequences:

  • It could alter the investment strategy of the scheme.
  • It would allow members to enjoy benefits other than pension related benefits from pension scheme funds tax-free when they have already had tax relief on contributions and investment build up.
  • Use of wasting assets would extract value from the fund without any tax charge on the members.

Therefore, where a person who is, or has been, a scheme member, or a member of their family or household has scheme assets provided for personal use, the cash equivalent of the benefit in kind will be charged on the member as an unauthorised payment. This also applies where a registered pension scheme has been wound up since the investment was acquired.


The Registered Pension Schemes (Provision of Information) Regulations 2006 - SI 2006/567

A registered pension scheme must report any benefits provided on the annual event report (see PTM161100).

In addition, the scheme administrator must give details of any benefits provided to the member before 7 July following the end of each tax year to enable the member to declare the unauthorised payments received on their individual Self-Assessment returns. The information the scheme administrator should give to the member is roughly along the lines of P11D benefit reporting:

  • The nature of the benefit provided
  • The amount of the unauthorised payment which is treated as being made by the provision of the benefit
  • The date on which the benefit is provided

For these purposes, a member includes:

  • a pensioner member,
  • an active member,
  • a deferred member, and
  • a pension credit member.

Meaning of family or household

Section 721 Income Tax (Earnings and Pensions) Act 2003

The following are members of a person’s family for this purpose:

  • the person’s spouse or civil partner,
  • the person’s children and their spouses or civil partners,
  • the person’s parents, and
  • the person’s dependants.

And the following are members of a person’s household:

  • the person’s domestic staff, and
  • the person’s guests.

Where, after the death of a person who is, or has been, a scheme member, an asset held by the registered pension scheme is used to provide a benefit to a person, who, at the time of the person’s death, was a member of the person’s family or household, an unauthorised payments charge will be made on the person receiving the benefit.

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Exclusions from charge

Where a person who is, or has been, a scheme member is provided with a benefit by reason of their employment (which is not an excluded employment as defined in section 63(4) of Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003)) (see Employment Income Manual at EIM20007) and has already been taxed on the benefit as an employee, the payment will not be treated as an unauthorised payment on the member as well. This avoids creating a double tax charge.


X Ltd pension scheme (which is not an investment-regulated pension scheme) owns a Rolls Royce, which is leased to the sponsoring employer X Ltd. Jason is a director of X Ltd and is provided with use of the Rolls Royce as a company car and for private use. Jason is subject to a benefit in kind tax charge on the use of the Rolls Royce as a director, and X Ltd submits a form P11d to their tax district.

Although the asset belongs to the pension scheme, there is no additional benefit charged on Jason.

Where a benefit is provided by reason of an excluded employment an unauthorised payment charge will be made,

  • if it is a benefit that would have been chargeable on the member under ITEPA 2003 if the employment was not an excluded employment;
  • if it is an occupational pension scheme that is holding the asset providing the benefit; and
  • the member, or member of his family or household is a director with a material interest in the sponsoring employer

“Material interest” has the meaning given by Section 68 ITEPA 2003 but broadly means owning 5% of the share capital or having an entitlement to 5% of the assets (see Employment Income manual at EIM20212).


Lisa is a member of Q Ltd Retirement Benefit Scheme (which is not an investment-regulated pension scheme) and an employee of Q Ltd. She earns £2000 per year. Her husband Nick is a director of the sponsoring employer. She is provided with the use of a car in her own right which is an asset of Q Ltd RBS. The value of the benefit is £5000 per year. As her salary plus the value of the benefit is less than £8500 per year, Lisa will not be taxed on the benefit as an employee. However, as her husband is a director, Lisa will be liable to an unauthorised payments charge on the value of the benefit. As the car is also a wasting asset, the scheme will be liable to a scheme sanction charge.