Finance (No.2) Act 2011 – Levy on Pension Schemes
Section 125B of the Stamp Duties Consolidation Act 1999 (as inserted by section 4 of the Finance (No.2) Act 2011) provides for an annual stamp duty of 0.6% of the market value of assets held for the purposes of pension schemes approved by the Revenue Commissioners under Irish tax legislation.
The legislation provides, in the definition of “chargeable amount” (to which the 0.6% Stamp Duty is to be applied), that the chargeable amount in relation to a chargeable person and any assets means the market value of those assets on 30 June for each of the years 2011 to 2014. All assets held for the purposes of defined contribution type schemes and all assets held as contracts of assurance fall to be valued on those respective dates. The legislation defines chargeable person as the insurer, where the assets are contracts of assurance, and, in any other case, the administrator in relation to the scheme (i.e. the trustees or other persons having the management of the scheme assets).
A limited exception to the 30 June valuation date is provided for in paragraph (b) of the definition of “chargeable amount” in respect of defined benefit occupational pension schemes and one-member small self-administered schemes. The exception relates to all assets that are held for the purposes of such schemes other than contracts of assurance. In this situation, the legislation affords the chargeable person a choice of two possible dates on which the market value of the individual assets may be ascertained and aggregated for the purposes of determining the chargeable amount for levy purposes. They can be valued at 30 June or they can be valued on the last day of the accounting period of the scheme ended in the period of 12 months immediately preceding 30 June. The purpose of this exception is to avoid placing the administrative costs on certain schemes of having to undertake a separate valuation for assets as at 30 June in circumstances where a valuation for those assets already existed in the most recent scheme accounts.
In seeking to avail of this choice of valuation date, it is important that trustees of defined benefit and one-member schemes be aware of the final provision of the definition of “chargeable amount” which states;
“….and in respect of which the chargeable person is the administrator or insurer on the date concerned”.
In other words, in order for a date to be valid as a valuation date the chargeable person must have held the assets concerned as administrator or insurer on that date. The primary purpose of this wording was to counter any attempt at switching assets between asset classes by using the choice of valuation date in a way that artificially reduced the “chargeable amount” while leaving the overall amount of assets held by the scheme largely unchanged.
This possibility could have arisen where the composition of the assets held for the purposes of a scheme (as between assets held in the form of contracts of assurance and non-contract of assurance assets) altered between the end of the scheme accounting period and 30 June. The following example illustrates the point.
The trustees of a defined benefit scheme hold the scheme’s assets partly as contracts of assurance and partly as non-insured assets. Audited accounts for the scheme year ended on 31 December 2010 show an asset composition as per column A of the Table following.
|31 Dec. 2010||30 June 2011|
|Contracts of assurance||€80m||€10m|
Prior to 30 June 2011, the trustees revised their investment strategy and decided to reduce considerably the portion of insured assets held by the scheme such that the asset composition at 30 June was as per column B of the Table.
The levy in respect of the €10m held in insured assets at 30 June 2011 will be deducted and paid by the insurer, as the chargeable person in respect of those assets.
As regards the non-insured assets, the trustees (as administrators of those assets) cannot decide to choose 31 December 2010 (i.e. the last day of the accounting period of the scheme ended in the period of 12 months immediately preceding 30 June 2011) as the valuation date for the non-insured assets and base the levy on the €20m in non-insured assets held by them at that date, while leaving the remaining €70m in non-insured assets outside of the levy charge.
Clearly €70m in non-insured scheme assets were held by the trustees on 30 June 2011 as administrator that were not held by them as administrator on the last day of the accounting period ended on 31 December 2010. The only available date for the trustees to value those assets is, therefore, 30 June 2011 when they held them as administrator.
The trustees may, of course, be in a position to exercise the choice provided for in the legislation in respect of the €20m of non-insured assets actually held by them as administrator on 31 December 2010.