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Anti-avoidance rules

These rules are very strict for two core aspects, breaches of which can result in severe financial consequences:

  • Unauthorised payments (to members or others).

This should not present any practical issues as the administrators should prevent any incorrect actions.

  • Value Shifting.

Value shifting arises when a transaction occurs that serves to pass value from the scheme to a member or connected person, and in many cases these can be based on arcane or inside information not known to the administrators. The vast majority of irregular plans that are designed to extract value from a pension scheme other than by taking benefits involve value shifting.

For example a scheme might sell a warehouse to the wife of a member, at a fair price for the property as a commercial property, when those involved know that the area is about to be zoned for residential development.

To prevent value shifting all transactions must be conducted at arms length and transactions involving members or connected parties will be subject to particular scrutiny (for example administrators might well seek additional expert opinions regarding the price and terms of the transactions). It is important to note that connected party transactions are not actually forbidden, but simply subject to additional scrutiny.

Legitimate value shifting - when all parties concerned recognise that a proposed transaction will involve value shifting - does not prevent the transaction occurring. However, there will be a charge designed to compensate for the value shifting.

For example, a pension fund may decide to pay a member an above market price for a property. This can be done, provided the charges and penalties are accepted.

In short, if you wish to arrange a transaction of this type, discuss it with your financial adviser first.

Breeches of anti-avoidance rules can be illegal and expensive; we strongly advise against them.

The way in which tax charges (or tax relief, as appropriate) are applied depends upon individual circumstances and may be subject to change in the future. This information is based on our understanding of current HMRC rules and practice. Tax rules and allowances are not guaranteed and may change in the future.

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