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Business Services  •  Personal Taxation  •  Tax Relief

Case update: New ruling over tax relief and SIPPs

By RJP LLP on 16 June 2020

A recent HMRC tax tribunal ruling has created a great deal of controversy in the pensions industry because it could mean that thousands of people with SIPPs (self invested personal pensions) and who made pension contributions which were initially deemed acceptable, could have to repay their tax relief. In total it could amount to millions of pounds of tax relief being reclaimed by the Treasury.

This development could be relevant for people who have a SIPP and who have made contributions involving properties such as commercial buildings or shares. Our article explains the situation and if you have a SIPP and placed non-cash assets into it, it may be advisable to speak with your pensions administrator.

In-specie contributions – the background to this case

HMRC won a case in the Upper Tribunal which ruled that pensions tax relief is not claimable on ‘in-specie contributions’, whereby assets such as property or shares are transferred into a SIPP without first being converted into cash. It sets a precedent for the pensions industry and pensions administrators are arguing they followed guidance in the Pensions Tax Manual. This sets out the procedure to follow for allowing assets transferred in specie to be treated as a contribution for tax relief purposes.

Initially the pensions administrator making the claim (Sippchoice, now owned by Dentons Pensions Management) won their case at the First Tier Tribunal in 2018, after HMRC refused to accept a claim from one of its clients for tax relief in respect of a contribution of £68,342 made in specie. However, following appeal, HMRC successfully argued in the Upper Tribunal that “contributions paid” refers only to payments of money and this should not extend to transfers of assets.

The Judge did acknowledge that HMRC’s pension tax guidance is not consistent with law and could be interpreted incorrectly – as in the case of Sippchoice and its client. However the court ultimately ruled it was down to Sippchoice to correctly interpret the relevant legislation because: “Statements in HMRC’s manuals are merely HMRC’s interpretation of the law in their internal guidance and they do not have the force of law”.

What are the implications of this ruling?

This ruling is worrying because it is quite common for companies to make pension contributions in the form of assets such as commercial property and it will now be necessary to carefully structure such contributions to ensure they take the form of monetary contributions. Looking at historical cases, HMRC may now be able to claim millions of pounds from taxpayers who have made contributions in specie to SIPP pensions.

Also worrying is that HMRC argued this case at all, despite the acknowledgement in their pensions manual that tax relief could be due on pension contributions without the need for cash to change hands, simply because of the structuring rather than the principal of pension relief, and this could perhaps have implications for other aspects of tax policy guidance.

If you have a SIPP pension and hold property and shares within it, it may be advisable to check your position with your pensions administrator.

partners@rjp.co.uk

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A recent HMRC tax tribunal ruling has created a great deal of controversy in the pensions industry because it could mean that thousands of people with SIPPs (self invested personal pensions) and who made pension contributions which were initially deemed acceptable, could have to repay their tax relief. In total it could amount to millions of pounds of tax relief being reclaimed by the Treasury.

This development could be relevant for people who have a SIPP and who have made contributions involving properties such as commercial buildings or shares. Our article explains the situation and if you have a SIPP and placed non-cash assets into it, it may be advisable to speak with your pensions administrator.

In-specie contributions – the background to this case

HMRC won a case in the Upper Tribunal which ruled that pensions tax relief is not claimable on ‘in-specie contributions’, whereby assets such as property or shares are transferred into a SIPP without first being converted into cash. It sets a precedent for the pensions industry and pensions administrators are arguing they followed guidance in the Pensions Tax Manual. This sets out the procedure to follow for allowing assets transferred in specie to be treated as a contribution for tax relief purposes.

Initially the pensions administrator making the claim (Sippchoice, now owned by Dentons Pensions Management) won their case at the First Tier Tribunal in 2018, after HMRC refused to accept a claim from one of its clients for tax relief in respect of a contribution of £68,342 made in specie. However, following appeal, HMRC successfully argued in the Upper Tribunal that “contributions paid” refers only to payments of money and this should not extend to transfers of assets.

The Judge did acknowledge that HMRC’s pension tax guidance is not consistent with law and could be interpreted incorrectly – as in the case of Sippchoice and its client. However the court ultimately ruled it was down to Sippchoice to correctly interpret the relevant legislation because: “Statements in HMRC’s manuals are merely HMRC’s interpretation of the law in their internal guidance and they do not have the force of law”.

What are the implications of this ruling?

This ruling is worrying because it is quite common for companies to make pension contributions in the form of assets such as commercial property and it will now be necessary to carefully structure such contributions to ensure they take the form of monetary contributions. Looking at historical cases, HMRC may now be able to claim millions of pounds from taxpayers who have made contributions in specie to SIPP pensions.

Also worrying is that HMRC argued this case at all, despite the acknowledgement in their pensions manual that tax relief could be due on pension contributions without the need for cash to change hands, simply because of the structuring rather than the principal of pension relief, and this could perhaps have implications for other aspects of tax policy guidance.

If you have a SIPP pension and hold property and shares within it, it may be advisable to check your position with your pensions administrator.

partners@rjp.co.uk