HM Revenue & Customs (HMRC) has been told to allow pension tax relief at source on non-cash contributions, granting a provisional reprieve on what could amount to millions of pounds in tax.
These ‘in-specie’ contributions are where property, shares or other assets are used to contribute to a pension, instead of cash. Following these in-specie contributions, Sipp firms can claim tax relief back from HMRC, the same as for normal cash contributions.
However, two years ago HMRC challenged certain contribution agreements. In August 2016 Citywire’s New Model Adviser® revealed that a number of Sipp providers had suspended in specie contributions over fears HMRC was changing its tax relief position.
A freedom of information request last May revealed 34 Sipp and small self-administered scheme (SSAS) firms had been blocked tax relief on these contributions in 2016.
HMRC then wrote to Sipp providers asking them to pay back tax relief on in-specie contributions, with the assessment backdated to the 2012/13 tax year.
Sipp operator Mattioli Woods has set aside £900,000 as a provision for an in-specie challenge from HMRC. Other Sipp providers were also likely to be facing large bills, but a tribunal case has now ruled against HMRC over these contributions.
Pension provider Sippchoice brought a case against HMRC which involved the contributions of four Sipp members, and whether their contributions were ‘paid’ within the meaning of section 188(2) of The Finance Act 2004, and therefore qualify for relief from income tax at source. Since the details of each member’s case was identical save for the value of contributions, the case centred on the circumstances of just one member, Mr Carlton.
Mr Carlton, claimed tax relief for the 2015-16 tax year. HMRC denied the claim for relief. Sippchoice contested that decision but HMRC refused the claim. Sippchoice took its claim to court to appeal HMRC’s decision.
In a ruling on 10 March, Judge Heather Gething ruled against HMRC’s decision, allowing the appeal by the Sipp providers. She said the meaning of the term ‘contribution paid’ was ‘wide enough to cover a transfer of assets in satisfaction of a debt as occurred in this case’.