HMRC has issued a consultation on limiting the amount of tax relief available to employers when they make asset-backed contributions to their DB schemes. As announced in the March Budget, the intention is to include legislation in the Finance Bill 2012, subject to the outcome of this consultation, which closes on 16 August 2011.

The proposals are intended to eliminate the possibility of double tax relief. In some cases where an employer has guaranteed a series of payments by giving security over the assets from which the payments are derived, the amount of the tax relief has been greater than the value of the assets actually received by the scheme. This is because tax relief has been given once for the discounted value of future income from the income stream and again for each instalment of income actually paid.  

The consultation considers two broad solutions:  

  • Providing tax relief only when cash is received by a scheme or full title to an asset is acquired; and  
  • Aligning tax rules with accounting rules so that the tax treatment as a whole reflects the substance of the transaction.  

Neither option would affect the current treatment of straightforward cash contributions.