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Pension firms fight HMRC's 'in specie' tax demand

Pension providers have launched a legal challenge to HM Revenue & Customs' attempt to claw back tax relief on 'in-specie' contributions.

Pension firms fight HMRC's 'in specie' tax demand

Providers of self-invested personal pensions (Sipps) have launched a legal challenge to HM Revenue & Customs (HMRC) over its demands for investors to repay tax relief on in-specie contributions from five years ago.

An in-specie contribution is one where an individual puts property, shares or other assets into a pension scheme instead of cash. Strict criteria must be met for this to be allowed.

Following these contributions the scheme administrator claims basic rate tax relief from HMRC with any tax relief above the basic rate is claimed by the individual, the same as for cash contributions. This process is known as relief at source. 

Last year HMRC challenged these contributions. A freedom of information request by Citywire's New Model Adviser® revealed 34 pension firms had been blocked tax relief on in specie payments in 2016. This challenge prompted most pension providers to stop accepting them.

Over the past few weeks HMRC has written to Sipp providers asking them to pay back tax relief on in-specie contributions, with the assessment backdated to the 2012/13 tax year.

Simon Laight, a partner at law firm Pinsent Masons, is helping these Sipp providers challenge these claims by HMRC. He told Citywire the money HMRC is asking for is not a small amount.

‘These are considerable amounts overall across the industry,’ he said. ‘I can’t say what the amounts are but HMRC would not be doing this if it was not a significant amount.’

HMRC was about to be time barred from claiming back the tax relief for the 2012/13 year, so claims were made over that year, and assessments have not yet been made for all the following years, he said.

Laight said so far the assessments are only for Sipp operators and not for relief claimed by individual members.

‘As far as we are aware, HMRC has not so far sought to re-open individuals’ tax returns for marginal rate relief claimed by individuals in the past [on in-specie contributions].  HMRC’s intentions on this are not clear,’ he added.

Legal challenge

The dispute is likely to be taken to an independent tax tribunal where a test case will determine if the tax relief should be paid back or not.

‘We have a lot of support to bring the test case but it is still a fluid situation and the more Sipp operators join in then the stronger the voice,’ he said.

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