Tax treatment of section 75 debts
Produced in partnership with Patrick Ford of Squire Patton Boggs

The following Pensions practice note produced in partnership with Patrick Ford of Squire Patton Boggs provides comprehensive and up to date legal information covering:

  • Tax treatment of section 75 debts
  • What is a section 75 debt?
  • What is the tax treatment of a section 75 debt?
  • Apportionment and withdrawal arrangements
  • Investment businesses
  • What is the timing of the tax deduction?
  • What are the specific issues that arise when a subsidiary is sold?
  • Target pays the debt
  • Seller pays the debt immediately
  • Entering into apportionment and withdrawal arrangements

Tax treatment of section 75 debts

THIS PRACTICE NOTE APPLIES IN RELATION TO DEFINED BENEFIT OCCUPATIONAL PENSION SCHEMES

What is a section 75 debt?

Sections 75 and 75A of the Pensions Act 1995 (PA 1995) are designed to ensure that defined benefit occupational pension schemes are adequately funded when they are wound up or when the sponsoring employer is liquidated. In a multi-employer scheme, a debt is also imposed on any employer that ceases to employ any active members at a time when another employer still employs at least one active member (known as an ‘employment cessation event’), even though neither the scheme nor the departing employer are being wound up.

For further information in respect of when section 75 debts are triggered and how they are calculated, see Practice Notes:

  1. How to deal with a section 75 debt—an introduction

  2. When is a section 75 debt triggered?, and

  3. Calculating a section 75 debt

What is the tax treatment of a section 75 debt?

Where a section 75 debt is to be paid, the key tax consideration is whether the section 75 debt will be tax deductible for the payer. In other words, will the payment be a deductible expense that reduces the payer’s taxable profits?

A section 75 debt is treated for tax purposes as a deemed contribution to an occupational scheme. This means that the usual rules that apply to

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