Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

VAT Land and Property

HM Revenue & Customs
, see all updates

Option to tax anti-avoidance - funding and financing: other payments or transfers from tenant to owner - funding or not?: pension fund contributions

Pension fund contributions which are invested in commercial property can in certain circumstances be deemed to be the provision of finance. This will be the case if:

  • at the time the pension fund member makes the contribution they have the intention or expectation that the money will be used by the pension fund to acquire, construct, refurbish etc a building which will be occupied by the pension fund, the contributing member or a person connected to either one of them, wholly or mainly for a non-taxable purpose, or
  • at the time the member makes their pension fund contribution they do not know how or where the funds will be invested but are required, under the terms and conditions of the pension scheme, to approve any subsequent property investments and authorise the release of the appropriate amount of capital from the fund to pay for the building which is to occupied as in the example above. This is deemed to be the provision of finance because the pension fund member in authorising the release of monies procures the provision of the necessary funds from the pension fund.

However, if the pension fund member has no knowledge of or control over how his contributions are invested these payments will not be deemed to be the provision of finance. This approach to pension fund contributions is supported by the Tribunal case, Winterthur Life UK Ltd (VTD 15785) 

In this case the appellant was a representative member of a VAT group which included the trustee of the personal pension schemes taken out by three individuals who traded together as an insurance broking business. Their pension fund contributions were used to part fund the acquisition of a property, part of which was then let to them at a full market rent.

The important point in the case is that at the time the three members submitted their application forms to join the pension scheme they indicated that they wanted their contributions invested in a particular property which they themselves intended to occupy. The trustee of their pension fund did not have the authority to make investment decisions or even provide investment advice. This was the sole responsibility of the contributing members or anybody else appointed by them. The schemes were set up specifically to finance the acquisition of a particular property and the members’ initial contributions were used to fund the acquisition of this specified property.

The Tribunal held that as a result of the member’s contributions, funds were made available which enabled the trustee to acquire the specified property and at the time of the contributions the scheme members knew that they would be occupying part of the building under the terms of a lease granted by the trustee. Consequently, the option to tax made by the trustee did not apply to the rental supplies made to the insurance broking partnership pursuant to the lease.