HM Revenue & Customs (HMRC) has said it will continue look into in-specie contributions where there are ‘concerns’ over the assets used.
In-specie contribution is the use of property, shares or other assets from outside the pension scheme to contribute to a pension, instead of cash.
Following these in-specie contributions the scheme administrator claims basic rate tax relief from HMRC and any tax relief above the basic rate is claimed from HMRC by the member, the same as for cash contributions.
However these contributions have come under the spotlight as a freedom of information (FOI) request by New Model Adviser® in February showed HMRC had blocked tax relief for 34 Sipp and SSAS firms in 2016 over in-specie contributions.
The reasons for this are still unclear, although New Model Adviser® understands there has been some misuse by certain firms.
Now HMRC has tried to clarify its position on these contributions and said, despite ‘recent speculation’, it has not changed its position on the contributions.
The Revenue said: ‘It is possible under contract law to give effect to a pre-existing obligation to make a cash contribution with the transfer of an asset or assets as demonstrated by the example in PTM042100 in the PTM.’
Under its guidance, HMRC said ‘give effect to cash contribution’ means where a member agrees to pay a certain monetary amount and then ‘to give effect to the cash contribution by way of a transfer of an asset or assets’. After the transfer is contributed, the scheme effectively buys the asset from the member and tax relief is given.
HMRC has said this guidance does not ‘legitimise’ in-specie contributions and is not ‘an exercise to be followed that means contributions will automatically be accepted by HMRC as qualifying for tax relief’.
The Revenue also said it will investigate where there are issues with the assets involved.
‘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,’ it said.
Reasons for looking into assets include:
- The value of the asset is less than the cash contribution obligation
- The type of asset is ‘not capable of being able to meet the pre-existing obligation to make the cash contribution’
- There is not enough evidence of a pre-existing obligation to make a cash contribution
Last August New Model Adviser® revealed that ‘most’ Sipp and SSAS firms had stopped accepting in-specie contributions following HMRC intervention.