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TaxRobin
TaxRobin, Tax Consultant
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Experience:  International tax
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My pension scheme is borrowing a sum of money from an individual

Resolved Question:

My pension scheme is borrowing a sum of money from an individual who is not resident in the UK, and who has not been so during the term of the loan. It is now about the pay that loan back to the non-resident with a 'balloon' interest payment.
My questions are:
1. Is the pension scheme oblige to deduct withholding tax from the interest?
2. If so, how much should it deduct?
3. And what this the mechanism by which the pension scheme remits the withholding tax to HMRC?
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.
Hi
Thanks for your question
From the tone of your question, it would seem this is something that you have already entered into, as you are asking after the payment back for the loan advanced on your pension pot.
May I ask
1) if your pension still intact within its original pension scheme
2) Who authorised the loan- was it the pension scheme or some other organisation, and how did this offer to release funds early come about
3) Were you under age 55 at the time this was entered into
4) Did your pension scheme inform HMRC of this arrangement
5) How much interest is being asked for
6) When you refer to with holding tax being paid, is this from the Uk to the overseas individual or from a transferred pension scheme abroad to an individual (also non resident
Thanks
Sam
Customer: replied 2 years ago.

Hi, Sam,

1. This does not have anything to do with my pension. I am the pension scheme administrator, and the Scheme has taken a loan under a loan agreement from the overseas individual. The use of the loan was for the purchase of a commercial property. Everything is in order vis-a-vis HMRC.

2. The loan was property authorised by the Pension Scheme trustees, and has been of consirable financial benefit to the scheme, as it was intended to be.

3. My own age has no relevance, as this is a loan taken out by the pension scheme itself, of which I am both a member and a trustee. (FYI I am 62, and in pension draw-down). The scheme, a SSAS, is that of the family business.

4. There is no obligation on the pension scheme to inform HMRC of this arrangement.

5 Interest is at 2.5% over base, compound quarterly. I.e. a commercial rate. All as per a written agreement drawn up in 2012.

6. The Pension Scheme wants to know how much tax, if any, it is required to withhold from the overseas lender now that the loan and interest is due to be repaid, and how it goes about remitting this tax to HMRC. Is there a particular form than needs completing, for example.

Thanks,

Alan McMahon

Pension Scheme Administrator

Expert:  TaxRobin replied 2 years ago.
Hello and thank you for allowing me to assist you.
ITA07/S874(1) says that if yearly interest arising in the UK is paid
by a company,
by a local authority,
by or on behalf of a partnership of which a company is a member, or
or by a person to another person whose usual place of abode is outside the United Kingdom
the person by or through whom the payment is made must deduct income tax at the basic rate.
ITA07/S934 makes an exception for payments where the beneficial owner of the payment is a UK resident company, but where payments of yearly interest are made to an overseas lender, the UK borrower is obliged to deduct income tax at the basic rate for the tax year in which the payment is made.
If your company or organisation pays interest, royalties, alternative finance payments, manufactured payments, relevant distributions or any similar recurring payment, you must generally make these payments after deducting Income Tax at the basic rate. You need to tell HM Revenue and Customs about these payments and pay the Income Tax that you’ve collected. Use form CT61 to do this unless your company or organisation is a limited liability partnership (LLP).
You can’t download form CT61 but you can request it online.
I cannot make you a link but the url is as follows:
https://online.hmrc.gov.uk/shortforms/form/CT61?dept-name=&sub-dept-name=&location=46&origin=http://www.hmrc.gov.uk
TaxRobin, Tax Consultant
Category: Tax
Satisfied Customers: 15716
Experience: International tax
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Customer: replied 2 years ago.

Thanks, ***** ***** I needed to know. Are you sure the CT61 is the correct form? This is not a limited liability company, it's a SSAS pension scheme, and therefore a Trust.

Expert:  TaxRobin replied 2 years ago.
Yes,as far as I can glean from the poorly written HMRC information on this the CT61 would be used by any BUT an LLC.