Jones-Tinsley: What’s the Revenue got against in specie?

During the summer, HMRC unexpectedly began challenging Sipp providers on whether net pension contributions can be made in specie, (that is, a change of legal ownership without sell/buy transactions). The issue currently seems restricted to net contributions ‘paid’ under the relief at source method; however, there is concern that HMRC might look at other in specie contributions such as those made by employers, and retrospectively investigate contributions made in specie as far back as 2009.Sipp providers, including ourselves, have therefore felt obliged to suspend allowing net in specie contributions. For our SSAS, we are warning that corporation tax may also be at risk, if the sponsoring employer makes in specie contributions.Earlier this year, HMRC made a change to one of its forms, requiring providers to separate out cash and in specie contributions in their claims for relief at source. Following this, a number of Sipp providers received a demand from HMRC for further information and documentation. In the meantime, we understand that HMRC withheld all tax relief, (that is, on cash contributions as well as in specie).The move appears to hinge on a legal debate around the word ‘paid’, which appears in the relevant sections of the Finance Act 2004.Contributions are most frequently paid in cash. However, as noted in HMRC’s Pensions Tax Manual, a pre-agreed cash contribution could subsequently be settled by the transfer in ownership of assets such as property, or other investments.Frustratingly, we don’t know why this has suddenly become an issue. The lack of comment from HMRC is disappointing, as Sipp members are being denied a potentially useful feature.HMRC may well have unearthed a scam; so triggering a widespread investigation to discover its extent. It is certainly an area which could be abused if, for example, the transferred asset is overvalued; thereby generating more tax relief than should otherwise be the case.But if that wasn’t enough, Sipp and SSAS providers have also recently become aware that Scottish-based properties, moved between self-invested pensions by way of an in specie transfer, are no longer exempt from ‘Land and Buildings Transaction Tax’ (LBTT), which is the Scottish equivalent of Stamp Duty.In their first “LBTT Technical Bulletin” issued in October, Revenue Scotland stated: “We have considered the application of LBTT legislation to pension fund in specie transfers and have concluded that generally such transfers give rise to an LBTT liability, on the basis that (a) such a transfer is a land transaction and (b) the assumption of the liability by the receiving pension fund is debt as consideration.”This approach differs from HMRC’s approach in England, Wales and Northern Ireland, where no Stamp Duty is levied on in specie transfers of property between Sipps and SSASs.Revenue Scotland has acknowledged there is concern over the stance it has taken, although it has not yet indicated if the tax will be backdated to apply from the introduction of LBTT in April 2015.The consequence – unintentional or not – is that self-invested clients may think twice before transferring away from their current provider, for whatever reason; a classic case of ‘the tax tail wagging the dog’!In conclusion, providers, advisers and clients alike currently face uncertainty and frustration over this ‘two-pronged attack’ on in specie contributions and transfers by the Revenue; in its different guises on both sides of the border.We can only hope that clarity and certainty of direction is provided in the near future - particularly given that the recent moves against in specie in recent months run contrary to agreed practice as established between the industry and the Revenue over several years.

Jones-Tinsley: What’s the Revenue got against in specie?

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