Members of Standard Life’s self-invested pension who had eligible claims against failed Catalyst Investment Group will now start receiving compensation payments from the Financial Services Compensation Scheme after a tax liability issue has been resolved.
In July, the FSCS said it was working with Standard Life to ensure that those Sipp members who make a successful claim are not subject to any adverse tax and HM Revenue and Customs reporting requirements if the FSCS makes recoveries in relation to their claims.
Catalyst was the primary UK distributor of life settlements products manufactured by Arm. It sold sold £54m worth of Arm bonds, which were backed by a portfolio of second-hand life insurance contracts that have since floundered.
HMRC confirmed today that it would consider a redress payment from the FSCS to a Sipp member as an unauthorised payment for which a tax liability would arise. HMRC said such a payment would attract a tax liability regardless of the Sipp provider, the form of the Sipp or the UK law which governs the Sipp.
To ensure Sipp members do not suffer an adverse outcome, Standard Life and FSCS have worked together to propose an alternative approach to HMRC.
HMRC has agreed that a recovery payment in respect of the Arm Bonds made by FSCS to the Sipp’s trustee, in this case Standard Life, and not directly to the Sipp member will not constitute an unauthorised payment. As a result, no tax liability should arise.
The amount of compensation paid and costs incurred in pursuing the assigned rights will be deducted by FSCS from the recoveries before being paid to the Sipp.
Claimants will need to grant consent to Standard Life for them to provide FSCS with a full legal assignment of the Arm assets.
The FSCS said it will contact affected claimants to obtain the required consent once its initial assessment of claims has been completed. This will enable FSCS to pay eligible claimants the compensation they are due, and any recoveries received in the future will then be paid into the investor’s Sipp.
Last year, investors who had money with Catalyst saw a delay in the claims process due to complications in gathering data from various sources.
At that time, the FSCS said it was continuing to work with the provisional liquidators of Arm Asset Backed Securities SA, which was declared in default on 4 December, to gather the information it needs to finalise its claims’ process.
donia.o’loughlin@ft.com
