UT (Tax & Chancery) UT/2023/000103 - [2025] UKUT 00102 (TCC)

Section 179 is headed “Authorised employer loans”, and it includes the following provisions:

“(1)

A loan made to or in respect of a person who is or has been a sponsoring employer is an authorised employer loan if –

(a)

the amount loaned does not exceed an amount equal to 50% of the aggregate of the amount of the sums, and the market value of the assets, held for the purposes of the pension scheme immediately before the loan is made,

(b)

the loan is secured by a charge which is of adequate value, and

(c)

the repayment terms comply with subsection (2).

(2)

The repayment terms comply with this subsection if –

(a)

the rate of interest payable on the loan is not less than the rate prescribed by regulations made by the Board of Inland Revenue,

(b)

the loan repayment date is before the end of the period of five years beginning with the date on which the loan is made, or has been postponed to a date after the end of that period under subsection (3), and

(c)   the amount payable in each period beginning with the date on which the loan is made, and ending with the last day of a loan year, is not less than the required amount.

(3)

If on a standard loan repayment date any amount (including interest) is owing, the loan repayment date may be postponed to a date before the end of the period of five years beginning with the standard loan repayment date.

(4)

The loan repayment date may be postponed under subsection (3) only once.

(5)

If the amount of a loan to or in respect of a person who is or has been a sponsoring employer is increased, the amount of the increase is to be treated as a loan made on the date of the increase.

(6)

Schedule 30 gives the meaning of expressions used in this section and explains how to calculate the amount of the unauthorised payment when a loan to or in respect of a person who is or has been a sponsoring employer does not comply with subsection (1).”

Section 179 thus sets out what the parties and the FTT referred to as “the five key tests for loans”, namely that to be “authorised”:

Sch 30, para 4 provides that the “required amount” is determined using a prescribed formula which ensures that:

Schedule 30 para 1 sets out what is meant by “a charge of adequate value”. It reads:

“(1)

A charge is of adequate value if it meets conditions A, B and C.

(2)

Condition A is that, at the time the charge is given, the market value of the assets subject to the charge

(a)

in the case of the first charge to secure the loan, is at least equal to the amount owing (including interest), and

(b)

in any other case, is at least equal to the lower of that amount and the market value of the assets subject to the previous charge.

(3)

Condition B is that if, at any time after the charge is given, the market value of the assets charged is less than would be required under condition A if the charge were given at that time, the reduction in value is not attributable to any step taken by the pension scheme, the sponsoring employer or a person connected with the sponsoring employer.

(4)

Condition C is that the charge takes priority over any other charge over the assets.”

Section 278 is headed “market value”. It includes the following provisions, which cross-refer to the Taxation of Chargeable Gains Act 1992 (“the TCGA”):

“(1)

For the purposes of this Part the market value of an asset held for the purposes of a pension scheme is to be determined in accordance with section 272 of TCGA 1992.

(2)

Where an asset held for the purposes of a pension scheme is a right or interest in respect of any money lent (directly or indirectly) to any relevant associated person, the value of the asset is to be treated as being the amount owing (including any unpaid interest) on the money lent.

(3)

The following are “relevant associated persons”—

(a)

any employer who has at any time (whether or not before the making of the loan) made contributions under the pension scheme…”

The definition of market value at TCGA s 272 reads:

“In this Act “market value” in relation to any asset means the price which those assets might reasonably be expected to fetch on a sale in the open market”.

Sch 30, para 8(1) provides:

“If at any time after a loan is made —

(a)

there is an alteration in the repayment terms, and

(b)

as a result the repayment terms cease to comply with one or more paragraphs of section 179(2) (authorised repayment terms),

there is an unauthorised payment of an amount equal to the larger of such of amounts A, B, and C (see paragraphs 14 to 16) as arise when that paragraph or those paragraphs are not complied with.”

It is not necessary for the purposes of this decision to set out how the amount of the unauthorised loan is calculated (ie by reference to amounts A, B and C).

The loans made to Langford, Fraser and Ballards from the respective SSASs therefore had to comply with the above provisions in order not to give rise to unauthorised employer payments.

The key issue before the FTT was whether the IP provided as security for the loans was “at least equal” to the amount of the loan, including interest, and this turned on whether the price paid for the IP was “the price which those assets might reasonably be expected to fetch on a sale in the open market”.