SSAS Scheme Sanction Charges: What They Are and How to Avoid Them

SSAS Scheme Sanction Charges: Understanding the Risk

When most trustees think about the tax risks of SSAS non-compliance, they focus on the personal charges that fall on members — the 40% unauthorised payment charge and the 15% surcharge. What is often overlooked is the scheme sanction charge: a separate tax liability that falls on the pension scheme itself.

A scheme sanction charge of up to 40% can effectively halve the value of the scheme event in question, compounding the already severe personal charges on members. Understanding when these charges arise and how they interact with personal charges is essential for any SSAS trustee.

What Triggers a Scheme Sanction Charge?

The scheme sanction charge arises when a registered pension scheme makes a "scheme chargeable payment." This is a broader category than unauthorised payments and includes:

• Unauthorised member payments: The most common trigger — payments to or for the benefit of a member that are not authorised under HMRC rules
• Employer loans: Loans to the sponsoring employer that breach the prescribed conditions (amount, security, interest rate, duration)
• Investment in taxable property: The acquisition of residential property or other "taxable property" by the scheme
• Scheme administrative errors: In certain circumstances, administrative failures by the scheme can give rise to chargeable payments
• Excessive borrowing: Borrowing that exceeds 50% of the scheme's net asset value

In our experience, many scheme sanction charges arise alongside unauthorised payment charges — i.e., both the scheme and the member face tax charges on the same event. However, as we explain below, the combined liability is designed not to exceed a theoretical maximum.

How the Charge Is Calculated

The scheme sanction charge is calculated as 40% of the amount of the scheme chargeable payment. However, the charge is reduced where the member has already paid, or is due to pay, an unauthorised payment charge on the same amount.

The reduction works as follows:

• If the member pays a 40% unauthorised payment charge, the scheme sanction charge is reduced by the amount of the member's charge
• This means that, in straightforward cases, the scheme sanction charge is effectively nil where the member pays the full 40% charge
• However, if the unauthorised payment surcharge (an additional 15%) also applies, the combined member charge (55%) exceeds the scheme sanction charge (40%), and the scheme may owe nothing
• Where the member does not pay (e.g., because the benefit was paid to a third party or the member cannot be identified), the full 40% scheme sanction charge falls on the scheme

Matt Lenzie notes: "The interaction between member charges and scheme charges is complex, and the outcome in any specific case depends on the exact nature of the payment and the extent to which personal charges are paid. This is not an area where trustees should try to self-assess — specialist tax advice is essential."

Who Pays the Scheme Sanction Charge?

The scheme sanction charge is a liability of the pension scheme itself, not the member personally. It is reported and paid by the scheme administrator via an Accounting for Tax (AFT) return. The payment comes out of scheme funds — meaning it directly reduces the value available for members' pension benefits.

This has an important practical implication: even where the member pays the full personal unauthorised payment charge, the scheme may still face its own separate charge. The scheme administrator must assess the position carefully and ensure both the member's return and the scheme's AFT return correctly reflect the tax position.

De-registration: The Ultimate Sanction

In cases of serious or persistent non-compliance, HMRC has the power to de-register a SSAS. De-registration is the most severe consequence of SSAS non-compliance and should be regarded as a last resort that trustees must do everything to avoid.

Upon de-registration:

• The scheme immediately ceases to be a registered pension scheme
• A de-registration charge of 40% of the scheme's total fund value is levied on the scheme administrator
• The scheme loses all the tax advantages of registered status — future income and gains become taxable
• Members cannot make further tax-relieved contributions
• Members may face additional personal tax charges

De-registration is reserved for the most egregious cases — typically where there is evidence of deliberate tax avoidance or repeated non-compliance after warnings. However, it underlines the importance of treating HMRC's rules with absolute seriousness.

The Taxable Property Problem

One of the most common triggers for scheme sanction charges in SSAS schemes is the acquisition of taxable property — primarily residential property. When a SSAS acquires an interest in residential property, HMRC treats the acquisition as a scheme chargeable payment equal to the value of the property interest acquired.

A 40% scheme sanction charge on a £300,000 residential property would therefore be £120,000 — a devastating outcome for a scheme that may have thought it was making a straightforward property investment.

"We have spoken with prospective clients who have already received a scheme sanction charge assessment from HMRC because a previous adviser failed to advise them adequately on the residential property rules. The financial damage is considerable, and in some cases the scheme has been significantly impaired. This is why proper advice before the transaction, not after, is so critical." — Matt Lenzie

For guidance on qualifying property types, see our articles on choosing the right property type and SSAS mixed-use property investment.

Mitigating Scheme Sanction Charges

If a scheme sanction charge has arisen or appears likely to arise, trustees should:

• Seek specialist pension law advice immediately
• Notify the scheme administrator — they have reporting obligations to HMRC
• Consider whether corrective action can be taken to unwind the transaction before HMRC assesses the charge
• Engage proactively with HMRC — there are limited circumstances where HMRC may exercise discretion
• Ensure the scheme's AFT return accurately reflects the position

In some cases, where an error has occurred in good faith and is corrected promptly, HMRC may take a more lenient view. However, this is not guaranteed and trustees should not rely on HMRC's discretion as a fallback.

Scheme Sanction Charges vs Annual Allowance Charges

It is worth distinguishing scheme sanction charges from the annual allowance charge, which is a different type of SSAS-related tax liability:

• The scheme sanction charge arises from scheme-level compliance failures (unauthorised payments, taxable property, excessive borrowing)
• The annual allowance charge arises when an individual member's total pension inputs in a tax year exceed their annual allowance
• Annual allowance charges are personal to the member and are not a scheme-level liability (though the scheme may pay the charge on behalf of the member under "mandatory scheme pays" rules)

For detail on the annual allowance, see our guide on SSAS annual allowance.

Key Takeaways

• Scheme sanction charges of up to 40% can be levied on the SSAS itself following non-compliance
• The charge is reduced by any unauthorised payment charge paid by the member — but may still arise if the member's charge does not cover the full 40%
• De-registration is the ultimate sanction, carrying a 40% charge on the full scheme fund
• Taxable property (especially residential) is a common trigger for scheme sanction charges
• The charge is payable from scheme funds, directly reducing members' pension benefits
• Professional advice before transactions, not after, is the most effective protection

Protect Your SSAS with Expert Guidance

Scheme sanction charges are an entirely avoidable risk when SSAS trustees have proper professional support. Our team works with specialist SSAS administrators and pension lawyers to ensure compliance is built into every transaction from the outset.

Contact us to discuss your SSAS compliance requirements. For further reading, see our guides on SSAS unauthorised payments, HMRC compliance, and HMRC reporting requirements.