Spotlight on unfunded pension arrangements

HMRC has published Spotlight 58 concerning arrangements used by owner-managed companies that aim to avoid corporation tax income tax and National Insurance contributions by using unfunded pension schemes.

The arrangements involve a company creating an unfunded pension obligation to pay a director a pension which HMRC believes will never be paid. The company claims a corporation tax deduction equal to the amount claimed to be the current value of the total future pension. Some arrangements take steps to avoid any immediate liability to income tax or National Insurance by transferring the obligation to pay the future pension to a third party in return for a payment from the company.

HMRC considers that these arrangements do not achieve the tax savings promised. It states it will challenge promoters or enablers of such arrangements. It will investigate the tax affairs of all users of such schemes...