Consultation issued 24 May 2011.

Consultation period ends 16 August 2011

Draft clauses expected autumn 2011.

Legislation will be introduced in the Finance Bill 2012

The Government has issued consultation aimed at preventing double faze relief when employers use assets to back contributions to pension schemes. At present, certain funding structures can result in tax relief both on the transfer of an asset from the employer to a special purpose vehicle and on the subsequent income stream that passes to the trustees. Two options are considered:

  • Option A - removing automatic upfront tax relief for asset-backed contributions. Tax relief would be allowed only when cash actually transfers from the employer to the pension scheme or when the trustees acquire full title to an asset that can be readily converted into cash.
  • Option B - aligning the tax rules with the accounting rules so that upfront tax relief would be available where the arrangement is treated in a debt in the employer's accounts, with further tax relief available only on the interest element of the subsequent income stream. If the arrangement is treated as equity in the employer's accounts, up front tax relief would not apply.