Pensions taxation: HMRC wins at the upper tribunal on in-specie contributions

In HMRC v Sippchoice [2020] UKUT 0149 (TCC), the Upper Tribunal decided that member contributions must be paid in money form to qualify for tax relief

21 May 2020

The Issue

Taxpayers contributing to a pension scheme may wish on occasion to pay contributions by transferring existing investments into their scheme. This is known as paying a contribution “in specie” (in kind). HMRC argued in the Sippchoice Upper Tribunal appeal that the way in which some operators have arranged in specie contributions does not work from the point of view of giving tax relief for those contributions.

This is despite their guidance on page PTM042100 of the Pensions Tax Manual which states that a member may agree to pay a monetary contribution in a recoverable debt obligation and then to give effect to the cash contribution by way of a transfer of an asset or assets.

HMRC’s appeal challenged the First Tier Tax Tribunal decision allowing the contributions for tax relief in this case.

Recap: the Finance Act 2004

Section 188 of the Act entitles members to tax relief on contributions paid. It does not say expressly that the contributions must be in monetary form.

HMRC argued that the Act allowed contributions in non-monetary form only in very limited stated circumstances and there was no general permission for them.

The tax tribunal’s decision

The tax tribunal had decided that

  • a declaration in a form to pay a certain contribution does not by itself create a legally binding obligation. Seen in the wider context of the membership contract though, it formed part of the member’s offer which was accepted by Sippchoice.
  • the term “payment” was not confined to the payment of cash. Section 195 is included simply to put the position of employees in SAYE and incentive plans beyond doubt.

The Upper Tribunal’s appeal decision

The Upper Tribunal decided that the words “contributions paid” in section 188(1) of the Finance Act 2004 are restricted to contributions of money (whether in cash or other forms). In other words, a payment of a non-monetary asset will not be eligible for tax relief.

Secondly, on the specific facts of this case, it decided that transfers of non-cash assets which are made in satisfaction of a pre-existing money debt are not ‘contributions paid’ within section 188(1) FA 2004.

HMRC’s support of the mechanism in their guidance on page PTM042100 was brushed away. Importantly, the Upper Tribunal said that HMRC’s statements in the tax manual are merely their interpretation of the law but do not have the force of the law.

Implications for SIPPs

The Upper Tribunal had little time for the argument that contributions in non-monetary form can qualify for tax relief.

HMRC may now recover the tax relief of affected contributions. Members who suffer a loss may choose to bring claims or make complaints at the Court or Ombudsman against SIPP operators who made in specie arrangements.

This case also illustrates the risks of relying on the Pensions Tax Manual and similar guidance in the context of establishing practices and in formal court proceedings.

Broader implications

Although the decisions relate to member contributions, the same legislative phraseology applies to employer contributions. 

This judgment therefore has scope beyond SIPPs. Any employer contributions under a registered scheme which are made by a transfer of assets may very well not now be eligible for tax relief.

What happens next? 

Given the Upper Tribunal’s comments about guidance page PTM042100, we anticipate that HMRC will review its approach to in specie contributions.

Operators of personal pension schemes that have accepted in specie contributions may want to assess their potential exposure to recovery of tax relief.

How Burges Salmon can help

We can provide you with advice about this case or pensions tax relief generally. 

If you are a SIPP operator who has accepted in specie contributions, we can assist you in your dealings with HMRC and any claims or complaints from affected members.

In the first instance, please get in touch with Alice Honeywill, Suzanne Padmore, Leo Robinson or usual Burges Salmon contact.

This article was written by Leo Robinson, a consultant in our pensions team.

Key contact

Alice Honeywill

Alice Honeywill Partner

  • Pensions Services
  • Pensions Regulatory
  • Public Sector Pension Schemes
  • Automatic Enrolment 
  • Life and Pensions

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