A Sipp investor has lost his case against HM Revenue & Customs, with the Court of Appeal ruling his self-invested personal pension transfer into a trust was an unauthorised payment and liable for tax.
In a case brought by Gareth Clark against HMRC, the Court of Appeal upheld the decision from two earlier tribunals and found the 'bizarre series of transactions' set up by the investor did not constitute an authorised payment, therefore a 40 per cent tax charge was payable.
The court heard how Mr Clark transferred more than £2m out of his Sipp, which was run by Suffolk Life, into a vehicle that would permit loans to be made to him so that he could invest in London residential property.
This was done by setting up a business called Laversham Marketing (LML) in Cyprus before transferring the shares to another business called Cedar Investment Management (CIM) which was set up in the British Virgin Islands.
Mr Clark then set up a company pension scheme which was attached to LML and arranged the transfer of the £2m held in his Sipp to the new pension plan.
Mr Clark then surrendered his benefits under the LML pension to allow for an authorised surplus payment.
An authorised surplus payment is a type of authorised employer payment that can be made under the tax rules for registered pension schemes.
According to HMRC, “it is a payment made to a sponsoring employer of a registered pension scheme that is an occupational pension scheme, and meets certain conditions”.
After the pension funds were moved to LML, it proceeded to transfer £1,885,980 to CIM to allow Mr Clark to borrow this money and make investments in the presidential property market.
But HMRC later issued Mr Clark with a 40 per cent tax charge after it claimed that the payment to Mr Clark was unauthorised because the original transfer was not into a registered pension scheme.
Mr Clark appealed this decision but was unsuccessful at the First Tier Tribunal, which agreed the transfer of funds amounted to an unauthorised payment.
The taxpayer's appeal to the Upper Tribunal also failed, with the court siding with the findings of the First Tier Tribunal.
The Court of Appeal found terms of use of LML Pension were uncertain. Therefore, it could not be considered as a pension scheme.
It was concluded that the transfer from the Sipp was by 'a bizarre series of transactions' designed to make it appear as if there was a transfer from an authorised pension scheme to another.
The court stated: “Mr Clark [...] had been responsible for bringing about a situation where what appeared to be a recognised transfer between registered pension schemes was in fact nothing of the sort.
“In such a case, there is indeed every reason why he should be liable to the charge to tax on unauthorised member payments.”
It was confirmed that the transfer from the Sipp amounted to an unauthorised payment and the appeal was dismissed.
amy.austin@ft.com
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