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The Pension Schemes Office (PSO) are responsible for approving property transactions entered into by small self-administered pension schemes. The trustees of such schemes are often also directors or employees of the company and members of the pension scheme. If the trustees enter into a sale or lease with the company or any directors or employees of the company, PSO may require valuation advice so that they can ensure that the scheme is not being used by the parties for tax avoidance purposes.
Various types of transaction may need to be considered, but often a sale and leaseback is entered into whereby the directors of a company sell the freehold to the pension scheme and the trustees grant a lease to the company. In such circumstances the rent may well be set at an artificially high level and this is then used to try and justify a sale price above the open market value with vacant possession.
The PSO may require advice on:-
- Whether a sale price represents the open market value of the property at the date of the transaction.
- Whether any rent represents the open market rent having regard to the terms of the lease granted by the scheme trustees.
In any sale and leaseback transactions the open market value of the property should be assessed on the assumption that the rent payable under the lease will be substituted by the DV's opinion of the open market rent, if different. The basis of the valuation should in such circumstances be clearly stated in the DV's report.
The PSO will usually require a not negotiated opinion of value on first reference. If the DV's valuations differ from the figures adopted by the parties and are not accepted by them, the PSO will refer the matter back with a request to negotiate agreed figures.
Work for the PSO is currently covered by the terms of the Service Level Agreement agreed with the Inland Revenue's Business Operations Division.
Cases will normally be referred direct to DVs in memo form setting out the facts and valuation required.
All cases should be dealt with in accordance with the same procedures and time limits as are applicable to Capital Gains Tax cases. (See Section 6). However, if it does not prove possible to reach agreement in any case, the DV should, when forwarding an 'unagreed' report to the PSO, forward a copy of the report and the case file to CEO via the RD/CV(S). CEO will then liaise with the PSO and advise on any further action required.