“Don’t do as we say, or as we do”
HMRC successfully argue their own advice on tax relief should be ignored and may pursue reimbursement on relief previously claimed
HMRC may look to recoup hundreds of thousands of pounds in tax relief previously claimed on in specie transfers, having been successful in their appeal to the Upper Tribunal in HMRC v Sippchoice.
The history of in specie transfers
It has long been held that an individual wishing to contribute to a pension scheme could do so by transferring an existing investment (such as shares or title to property) into their pension scheme, and benefit from the tax relief available under the Finance Act 2004. This process became known as an in specie transfer and was recommended by HMRC’s own Pensions Tax Manual.
So far so good for SIPP and SSAS providers and investors alike. However, the ability of in specie transfers to qualify for tax relief has now been thrown into doubt by the decision of the Upper Tribunal in HMRC v Sippchoice.
HMRC v Sippchoice
The case centred on HMRC’s refusal to accept a claim from one of Sippchoice’s clients for relief from income tax at source on an in specie contribution. The individual had invested in a SIPP provided by Sippchoice and had transferred shares worth £68,342 into that SIPP.
Despite their own guidance, HMRC argued that the Finance Act 2004 only allows for non-monetary contributions to be made to a pension scheme in very limited circumstances, and that a transfer of shares did not qualify for tax relief.
Although the First Tier Tribunal ruled in Sippchoice’s favour, the Upper Tribunal upheld HMRC’s appeal and found that in specie transfers do not qualify for tax relief as they do not meet the required definition of “contributions paid”. The Judge also found that, despite HMRC’s guidance, “an agreement to accept something other than money as performance of an obligation to pay in money does not convert the transfer of shares (or other assets) into a payment in money.” It is crucial to note that HMRC’s manuals merely represent its own interpretation of the legislation and do not have the force of law.
Should we be concerned?
This decision will be a source of worry for SIPP or SSAS providers and investors who have previously made in specie transfers and have claimed tax relief on those transfers.
Spokespeople for providers have raised concerns that HMRC may take the route of pursuing tax relief reimbursement from all those who have previously claimed it. If this occurs, providers may have no choice but to rely on their professional indemnity cover or to recover the tax relief from their clients. If the latter, those clients affected are likely to make formal complaints on the basis that they were merely following the provider’s standard processes.
HMRC have so far remained characteristically tight-lipped about whether they intend to pursue reimbursement and how far back they would seek to look. In light of the current Covid-19 crisis however, we anticipate that HMRC are likely to want to recoup as much as they possibly can.
What can we do while we wait for HMRC to decide on their approach?
If you are a SIPP or SSAS provider, we would recommend you undertake a review of previous in specie transfers made into your pension schemes, paying particular attention to whether tax relief has been claimed on these transfers, to understand your risk exposure.
Should you have any concerns about how you assess the risks to you and your possible routes forward please contact us to discuss them. Our team has wide-ranging experience and will be able to assist you in identifying your risk exposure and producing an action plan to support you with managing it.
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
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