A number of Sipp providers are suspending in-specie contributions over fears HM Revenue & Customs (HMRC) is changing its tax relief position.
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. Strict criteria must be met for in-specie assets to be accepted as pension contributions.
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. This process is known as relief at source.
Last week New Model Adviser® revealed HMRC may be changing its stance with in-specie contributions and has even refused to give tax relief to some Sipp firms for them, although the reasons for this are unclear at this stage.
In response, yesterday Sipp providers across the country joined a roundtable meeting, chaired by solicitors Pinsent Masons and featuring the Association of Member Directed Pension Schemes’ (Amps) to discuss how the industry should respond to HMRC.
Amps chairman Neil MacGillivray (pictured) said the meeting featured Sipp and SSAS firms from around the country, and had ‘significant interest’.
MacGillivray said at the meeting it was decided that Amps is going to gather information from its members to try and discern if there is a ‘common thread’ to what HMRC is saying over these contributions.
‘What you have is a situation here, and we don’t know the number of Sipp firms affected, but where there is in-specie contributions, the Revenue is challenging whether or not relief at source is available,’ he said.
‘The outcome of the meeting is we are going to gather information from firms affected, look and see what the common threads are and then probably in the first instance we will correspond with the Revenue directly on it,’ he said.
When asked what the consequence of HMRC’s position on these contributions are, MacGillivray said it could lead to ‘financial costs’ for the industry and for members.
‘The first thing we have to establish is if the Revenue is correct in the stance it is taking. If the revenue is correct and we won’t get relief at source and there is a financial price to pay.’
MacGillivray said there is a ‘very strong possibility’ HMRC could ask for tax relief back on previous contributions if it comes to the conclusion that in-specie contributions do not qualify for tax relief.
He explained these contributions stretch back to 2009, and HMRC could ask for tax relief back from the Sipp provider on the basic rate of tax relief which is claimed at source.
However HMRC would in that case also demand the members pays back higher rate tax relief which they have personally claimed back, he said.
Both the member and Sipp firms could be forced to pay HMRC back tax relief on these contributions stretching back to 2009, he said.
In light of concern in the industry, MacGillivray said ‘most’ Sipp providers are now suspending in-specie contributions until there is clarity from HMRC.
Martin Tilley, director of technical services at Dentons, confirmed his Sipp has suspended the contributions but will hopefully change its position by the end of the tax year.
A spokeswoman from James Hay confirmed that it is also ‘temporarily’ suspending in-specie contributions while it holds a review.
‘In-specie contributions are inherently complex, and at this stage it is unclear how long the review process will take. Once completed, however, the results will allow us to decide whether we wish to continue offering this option to our clients,’ she said.
Phil Smith, chief executive of Embark, which owns both Hornbuckle and Rowanmoor, said the Sipp firms had not ‘automatically’ suspended in-specie contributions but is looking at them on a case-by-case basis and is taking a cautious approach to them because of the lack of clarity over HMRC’s stance.
‘Sipp providers cannot take the tax risk which is then deemed to be ineligible. We want to protect the consumer and we do that best by giving them visibility of the risk,' he said.
HMRC said it could not comment.