Anti-Avoidance Rules

The new rules render obsolete all the old tests regarding income and ability to invest in pensions etc. But where they have teeth is in the correct management of the scheme.

The rules are very tight on two core aspects:-

• Unauthorised Payments (to members or others).

This should not present any practical issues as the administrators will 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 “cunning 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 re the price and terms of the transactions). Note that connected party transactions are not actually forbidden, but simply subject to scrutiny.

Legitimate Value Shifting. Where all concerned recognise that a proposed transaction will involve Value Shifting that does not preclude the transaction occurring, but 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.

Breaches of Anti-Avoidance rules are very expensive. Don't.

Last updated on April 11, 2008

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