Elaine Turtle: The in-specie question nears a solution

The recent judgment in the HMRC v SIPPchoice case, published in May, was in relation to tax relief on in-specie contributions. This case has been ongoing for a number of years and it would appear that we finally have resolution. Sippchoice was appealing against HMRC’s refusal of Relief at Source tax relief in respect of personal SIPP contributions made using the process set out in HMRC’s Pension Tax Manual as “Giving effect to cash contributions”, historically referred to as “in-specie” contributions. Sippchoice won their appeal to the First Tier Tax Tribunal but this was overturned in May by the Upper Tribunal (Tax and Chancery). HMRC successfully argued that the process set out by them in the Pensions Tax Manual was wrong. HMRC stated, and the Judge agreed, that the underlying legislation required that tax-relievable contributions could only be made in cash. Therefore no method of making an “in-specie” contribution could be a tax relievable contribution unless it was in respect of SAYE shares. The industry is waiting to hear from HMRC as to how they will deal with taxpayers who followed the PTM in the reasonable belief that the tax manual was correct. Given the wide media coverage surrounding this case, it is understandable that we were contacted by a number of advisers who were concerned that this could also impact in-specie transfers. So, I thought it might make a useful subject for this column. There is a clear difference between in-specie transfers and in-specie contributions. An in-specie transfer involves transferring an asset from one pension scheme to another. It is a form of transferred rights, a transfer can be made as cash, by assignment of insurance policies, as an asset (in-specie), or any combination of these, provided the cash and assets transferred represent the full value of the member’s rights to be transferred. Transfers are valued in cash terms. If a transfer involves an asset (for example, a property or an investment portfolio) being transferred between pension schemes, that asset must be valued in cash terms by an appropriately qualified, independent person before being transferred. Section 169 FA2004 under Recognized Transfers refers to “sums or assets” which clearly includes in-specie transfers. An in-specie contribution is where an asset was transferred into the SIPP instead of a cash contribution using a method set out in HMRC’s PTM manual. There is a clear process by which a member commits to paying a cash contribution but subsequently offers an asset for consideration in “offset” against it. The difference in these terms is very important. In-specie contributions have always been complex and few SIPP providers have accepted them following HMRC’s challenge, but in-specie transfers are still widely used and provide a usefully method of keeping a member fully invested, often with a saving in costs. The needs of clients can change dramatically during the lifetime of a pension scheme. Being able to move a property for instance between a SIPP and a SSAS or the other way round is a great Financial Planning tool. Elaine is a director of DP Pensions, which provides management services for SIPPs and SSASs. She has worked in financial services for over 30 years and held a number of senior roles in the self-administered pension sector. She was involved for many years with the Association of Pensioneer Trustees (APT), the SIPP Provider Group (SPG) and the Association of Member-directed Pension Schemes (AMPs). This email address is being protected from spambots. You need JavaScript enabled to view it. www.dapco.co.uk

Elaine Turtle: The in-specie question nears a solution

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