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Pension Assets in Tax Relief Clampdown
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Written by James D. Crawford   
Thursday, 22 December 2011
A CLAMPDOWN on tax relief claimed by companies putting their own assets into their pension funds could raise up to ?2.6bn over six years, the Treasury believes.

Normally, parent companies make cash contributions to their employee pension funds, which are then invested in shares, bonds and other assets.

But 'asset-backed' contributions - where, instead of cash, the parent company gives the pension scheme property rights to rental income, or even other assets such as brands - have become increasingly popular.

Firms including Marks & Spencer, Sainsbury's, Lloyds, John Lewis, GKN and Diageo have made such arrangements, with a total of ?2bn flowing into retirement schemes in the past two years, according to accountants KPMG.

Asset-backed deals have been seen as an attractive way to plug a pension shortfall, as in some cases companies have been able to claim double tax relief.

For example, a firm might transfer to its pension scheme the right to ?1m a year rent on its property.

It can then claim tax relief on the ?1m transfer - and a further tax deduction on the actual rent.

But the Finance Bill, due on December 6, will propose measures to end double relief. These will be effective from yesterday.

The Treasury reckons the change will yield ?450m in the current year and a total of ?2.59m over six years.

Patrick Stevens, tax partner at Ernst & Young, said: 'This is an anti-avoidance measure which will affect relatively few large companies.'
Last Updated ( Thursday, 22 December 2011 )