HMRC faces legal challenge over in-specie tax bills

HMRC faces legal challenge over in-specie tax bills

Several pension providers have instructed lawyers to fight attempts by HM Revenue and Customs to claw back tax relief on certain pension scheme contributions.

At the centre of the row are in-specie contributions, a type of payment to a pension scheme using assets other than cash, such as property or shares.

As pension contributions they attract tax relief – but in the case of 26 self-invested personal pension and small self-administered scheme providers HMRC has refused to allow tax relief on in-specie contributions.

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Ian Hyde, tax partner at law firm Pinsent Masons, said he is acting for a number of pension providers that have been told by HMRC that members of their schemes could now face a tax bill for in-specie contributions.

Mr Hyde said HMRC is picking up on points on the margin of tax law, and can be “very harsh” in its interpretation of them. 

FTAdviser understands the taxman found some abuse of its rules and has moved to stamp that out by investigating pension arrangements going back to 2009, and making demands for repayment of relief in some cases.

HM Revenue & Customs maintains that it has not changed its stance on the taxation of in-specie contributions.

But pension providers are interpreting HMRC’s decision to clampdown on certain schemes as a severe tightening of generally accepted rules.

Among those who are taking legal advice on the issue is the Association of Member-Directed Pension Schemes, the trade body for Sipps and Ssas, which has 150 member firms.

A spokesperson for Amps said the trade body is “liaising with HMRC and lawyers in an attempt to understand what might have developed in [HMRC’s] expectations for contributions given effect to through transfers of assets other than cash”. 

The trade body conceded it is open to HMRC to audit claims for relief and to review processes through which contributions are given effect.

Mr Hyde, who has more than 25 years of experience in advising on tax strategy with a particular interest in tax risk, said: “HMRC are looking to deny tax relief on [in-specie] contributions. That is of concern to the industry and a number of providers are looking to see if they can make test cases.

“The aspect that is particularly painful is the risk that HMRC has allowed the industry to do these non-cash contributions and is now going back retrospectively. 

“HMRC is investigating all the way back to April 2009. There are issues around whether HMRC can go back that far due to time-barring. We will absolutely fight them on this.”

John Fox, managing director of Liberty Sipp, said the tax office has been asking providers to supply them with information going back to 2009.

“Our worry is that this could result in unexpected tax bills for clients as well as tax on the contribution having to be paid back to the HMRC.”