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HMRC vs in specie contributions – part II

Published by James Jones-Tinsley on

In November 2016 we published a blog that focused on HMRC unexpectedly challenging SIPP providers on whether net pension contributions could be made in specie, (that is, a change of legal ownership without any sell/buy transactions), and still receive tax relief.

At the start of the 2016/17 tax year, HMRC changed their ‘relief at source’ (RAS) claim forms, requiring providers to separate out cash and in specie contributions in their claims for tax relief.  A few months later, a number of SIPP providers started to receive demands from HMRC for further information and documentation, relating to any in specie contributions listed.  In the meantime, HMRC withheld all tax relief; even for cash contributions, as well as in specie ones.

Frustratingly, however, SIPP providers didn’t know why this had suddenly become an issue, as HMRC remained relatively ‘tight-lipped’ over the reason(s) behind what appeared to be a sudden change in their position.

Indeed, the lack of  clarity led to many providers refusing to allow any new in specie contributions, as well as engaging with a law firm, with the aim of bringing a test case to tribunal, in an attempt to tease out the justification behind HMRC’s refusal to grant tax relief.

Finally, HMRC have spoken

In the latest HMRC Pension Schemes Newsletter, which was released on 21 April, the first section deals with in specie contributions to registered pension schemes;

HMRC has received a number of requests to clarify our technical understanding of the contribution of assets to registered pension schemes…This article summarises HMRC’s view on the legislation and the guidance provided at [Page 042100] in the Pensions Tax Manual (PTM)”.

The ‘article’ is split into two sections; one headed “HMRC’s position” and the other headed “HMRC compliance activity”.

In the first section, HMRC state that they have not changed their position on in specie contributions, claiming that their view has always been,

 “…that the only contributions on which tax relief can be claimed under [legislation] are those made in cash. Where any other type of asset is acceptable…is specifically provided for in the legislation.”  “We have not and could not legitimise in specie contributions, as that would be contrary to the legislation…[and]…the steps described in the guidance…are not an exercise to be followed that means contributions will automatically be accepted by HMRC as qualifying for tax relief.”

 In the second section, HMRC state that the information provided on the RAS claim forms after the 2016/17 changes were made (our emphasis);

“…demonstrated that our concerns were valid.  As a result, a number of enquiries were opened into RAS claims and these are ongoing.  HMRC will continue to look into transactions where there are concerns that the transfer of an asset does not give effect to a cash contribution. The reasons why…are numerous…”

So what can SIPP providers, Advisers, and their clients glean from this? 

Firstly, that HMRC’s position surrounding in specie contributions is, apparently, still the same as it ever was, and that – in order to be certain of receiving tax relief (all things being equal) – pension contributions should always be made in cash.

For those who subsequently decide to ‘swap’ cash for an asset of equal value to act as their contribution, there is no guarantee that the asset will be capable of meeting the pre-existing obligation to make the cash contribution, and that following all steps in the PTM guidance, as it was understood previously, does not guarantee that the contribution will automatically be accepted by HMRC as qualifying for tax relief.

In conclusion, HMRC’s statement in their latest PSN, leads me to one conclusion; namely that HMRC don’t want contributions to be made to pensions in specie, and although legislation appears to allow for these in theory, we are told that;

“HMRC undertakes compliance activity on a case by case basis and the outcome will depend upon the facts and circumstances specific to each individual case”,

Which, to me, is just a long-winded way of saying “no”.

 

About the author

  • James Jones-Tinsley

    James assists colleagues in both the SSAS and SIPP Practice Areas on a wide range of technical matters relating to the operation and governance of Barnett Waddingham’s self-invested pension arrangements.

    View Biography

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