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HMRC seeking to appeal landmark in-specie pension case

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HMRC seeking to appeal landmark in-specie pension case

HM Revenue & Customs (HMRC) is seeking to appeal a court ruling against its clampdown on in-specie pension contributions.

While the Revenue continues to pursue the case most Sipp providers are still not accepting these contributions.

In-specie contributions are where property, shares or other assets are used to contribute to a pension, instead of cash. Following these contributions, Sipp firms can claim tax relief back from HMRC, the same as for normal cash contributions.

However, two years ago HMRC challenged these in-specie contribution agreements and in October 2016 New Model Adviser® revealed HMRC had blocked tax relief on these contributions to 26 Sipp and SSAS firms.

While this challenge was going on, one Sipp firm, Sippchoice, made a claim for tax relief on an in-specie contribution of £68,342 from an individual called, Mr Carlton in 2016. This contribution was through unlisted company shares. Tax relief on this contribution was denied by HMRC - Sippchoice then challenged that decision and the case went to the First Tier tax tribunal. 

In a decision published last month the judge in that case ruled against HMRC, allowing the challenge by the Sipp provider over tax relief on these contributions. However HMRC is now preparing to appeal that ruling,  which would refer the case to the Upper Tier tax tribunal.

Martin Tilley, director of technical services at Dentons, which acquired Sippchoice in February, said following the ruling published in March HMRC had 56 days to appeal and the Revenue has notified Sippchoice of its intention to appeal. However New Model Adviser® understands HMRC has not yet been given permission by the courts to appeal.  

Tilley said he was not sure what the basis of the appeal would be, but said while HMRC continues to challenge the ruling; Sipp providers are still not accepting these contributions.

‘We are expecting the appeal and as a result it is only the first battle and it is certainly not a game changer until the Revenue throws in the towel. So at the moment we, and I don’t think any other Sipp providers, are not accepting in-specie contributions.’

In 2016 most Sipp providers, including Dentons, stopped accepting these contributions.

Mattioli Woods chief operating officer Mark Smith said his Sipp firm is also still not accepting the contributions until it gets further clarification through the tribunals.

‘It [making in-specie contributions] puts clients at risk of not being able to claim tax relief on their contributions,’ he said.

Last year HMRC wrote to Sipp providers asking them to pay back tax relief on these contributions, with the assessment backdated to the 2012/13 tax year. In 2017 Mattioli Woods  said it had set aside £900,000 as a provision for the in-specie challenge from HMRC.

The Sippchoice case 

The case, which found against HMRC, centred around a dispute over whether ‘contributions paid’ into a Sipp, in this case through unlisted shares, were "paid" within the meaning of section 188(2) Finance Act 2004 (FA 2004) and therefore qualify for relief from income tax at source’.

In its submission to Judge Heather Gething, Sippchoice argued: ‘There is no indication in the legislation that "contribution paid" in section 188(1) and (2) should be confined to cash payment.’

HMRC disputed this and argued: ‘The expression "contributions paid" in Part 4 Chapter 4 of FA 2004 should be given their natural meaning which would require the Tribunal to find it meant a "money" payment.’

But Judge Gething sided with the Sipp provider, ruling 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’.

HMRC declined to comment.

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