DQ Pensions Case Alert: Non-Relevant Benefits and Unauthorized Payment Penalties

In the recent UK case of David Foulkes v HMRC [2024] UKFTT 00322 (TC), the tribunal found that a loan payment made to a member of a pension scheme constituted an unauthorised member payment subject to heavy unauthorised payment charges and surcharges. Briefly, the facts which led to this determination were that a particular investment was made with the member’s fund which, at the time, the member was advised would entitle him access to (which he received) a third-party loan separate from his pension. Notwithstanding the advice received or the fact that the member was supposedly unaware of the connection between the loan and the investment of his fund, the tribunal found that the loan payment was a benefit provided in connection with the investment using his funds and was therefore an unauthorised member payment subject to tax penalties.

Whilst the Isle of Man does not have equivalent legislation to the UK’s Finance Act 2004 under which the decision in the above case was made, it is clear from Practice Note 166/10 issued by the Treasury titled Approved Pension Schemes – Investments and dated 27 October 2010 (the “Practice Note”) that approval of an Isle of Man pension scheme by the Assessor of Income Tax (the “Assessor”) will not be given where ‘non-relevant benefits’ may be provided to a member (or to a person connected to a member) through a proposed investment. Non-relevant benefits could include, for instance, the use or enjoyment of an asset, entry into a transaction which is not on arm’s length terms or possibly, as in the above case, the provision of a loan. Further, the Practice Note confirms that the provision of non-relevant benefits could constitute “unauthorised payments” which are subject to income tax and supplementary charges, and which may result in a review of the administration of the scheme and ultimately withdrawal of the Assessor’s approval.

This case therefore serves as a reminder that any payments approved by pension scheme trustees should strictly be in accordance with the scheme rules and Isle of Man legislation and regulations, and that loans or other ‘non-relevant benefits’ provided to members (or to persons connected to members) could not only constitute an unauthorised payment subject to negative tax and supplementary charges, but which could also prejudice approval of the relevant scheme.

If you would like further information on this subject please contact Rachel Winterbach and/or Annemarie Hughes.

Rachel Winterbach



The information and/or opinions contained in this article is necessarily brief and general in nature and does not constitute legal or taxation advice. Appropriate legal or other professional advice should be sought for any specific matter. Any reliance on such information and/or opinions is therefore solely at the user’s own risk and DQ Advocates Limited (and its associates and subsidiaries) is not responsible for, and does not accept any responsibility or liability in connection with any action taken or reliance placed upon such content.

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