GAAR Opinion: Loan-like transaction abusive

The GAAR Advisory Panel found transactions with a pension scheme that purported to create a transaction akin to a loan, but without an unauthorised payment charge arising, were not a reasonable course of action.

The General Anti-Abuse Rule (GAAR) Advisory Panel was asked to consider arrangements whereby:

• A pension scheme was established on 20 January 2016 for a single member (M).
• The trustees of the scheme were M and a professional trustee company (Trustees).
• On May 2016 the value of the scheme stood at £263k which was largely made up of a transfer from another scheme.
• In June 2016 the Trustees agreed to purchase a low-risk investment (Investment) for £100k.
• In July 2016 the Trustees agreed with M that:
  • M will buy the Investment for £100k.
  • M will pay the purchase price in 10 annual instalments which were to include interest.
  • The Investment was sold to M.
  • M surrendered the investment and £100k in cash.

The GAAR Advisory Panel opined that the arrangements were not a reasonable course of action in relation to the tax provisions as:

• The arrangements were tax arrangements as:
  • The pre-planned steps resulted in M receiving tax-free cash as a result of transactions undertaken by and with the pension scheme.
• The entering into the arrangements was abnormal and contrived as:
  • The terms of payment provided to M were in contrast to industry norms which required an immediate cash payment.
  • The surrender of the investment by M shortly after acquisition, suggested the reason for the arrangements was to cause an outflow of cash from the pension scheme to M.
• The arrangements were abusive as:
  • They purported to result in a transaction which was akin to a loan but without resulting in an Unauthorised Payment Charge.

The panel found that entering into and carrying out the arrangements were not a reasonable course of action in relation to the relevant tax provisions.

Useful guides on this topic

Pensions: Unauthorised payment charge
What is a pensions unauthorised payment? When does a tax charge arise? Who pays the charge? 

General Anti-Abuse Rule (GAAR) (subscriber version)
What is the General Anti-Abuse Rule (GAAR)? When does it apply? 

General Anti-Abuse Rule: GAAR at a glance
This note looks at the key features of the General Anti-Abuse Rule (GAAR) contained within the Finance Act 2013 and the basics of what you need to know about the provisions it contains when considering tax planning.

Tax avoidance schemes
How do you spot tax avoidance schemes? What are the types of schemes available that should be avoided? What disclosure requirements are there? When are tax clearances needed? 

External links

GAAR Advisory Panel opinion of 15 September 2022: Unauthorised payment from registered pension scheme involving debt arrangement