In the case of Browne v Commissioners for HMRC, the First-tier Tribunal of the tax courts has upheld HMRC's determination that where a payment made from the transferring pension schemes was held in the member's own bank account before being paid to the receiving scheme, the payment did not qualify as a "recognised transfer" for the purposes of the Finance Act 2004 and was therefore subject to an unauthorised payments charge.

The member concerned was a financial adviser who worked for the organisation that operated the scheme which the member originally intended to be the receiving scheme for his transfer values. The member received cheques which the transferring schemes clearly intended should be paid into the bank account of the receiving scheme. However, the member opened his own business bank account and paid the cheques into that. He subsequently transferred the funds into another personal bank account. As the relevant funds were no longer being held in a scheme bank account, the member then found it difficult to find any scheme that would accept the funds as a transfer value. Approximately three years later the member did manage to get the funds transferred into another registered pension scheme.

The Tribunal found that the member had always intended to transfer the funds to another pension scheme. However, it held "sums transferred between pension schemes can only be authorised payments if they do not leave the control of a registered pension scheme and, particularly, if they do not come at any time into the control of the member of the scheme." It therefore held that an unauthorised payment had occurred when the funds were paid into the member's bank account, resulting in an unauthorised payment charge.

As the transfer comprised 100% of the member's funds, HMRC also sought to impose an unauthorised payments surcharge. The member appealed the application of the surcharge. The Tribunal therefore had to decide whether to disapply the surcharge on the grounds that in all the circumstances of the case it would not be just and reasonable for the member to be liable for it. The Tribunal considered that the purpose of the surcharge was "to penalise unauthorised payments where they are made in order to frustrate the purposes of the pension scheme tax regime and abuse its tax reliefs and exemptions". The Tribunal considered that had not been the member's intention and decided to quash the unauthorised payments surcharge.


The circumstances of this case were unusual, but the case illustrates that the courts are likely to strictly apply the principle that in order for a transfer to be a recognised transfer, the funds must pass directly from the transferring scheme to the receiving scheme with no intermediate stage. The case is also noteworthy in showing that the courts may be willing to exercise their discretion to disapply an unauthorised payments surcharge where the parties have acted in good faith.

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Jade Murray

Jade Murray

Partner, Pensions
United Kingdom

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