HMRC clarifies guidance on in-specie tax relief

HMRC clarifies guidance on in-specie tax relief

HM Revenue and Customs has updated its guidance relating to in-specie contributions to clarify when tax relief will arise, after winning the latest round in a long-running case earlier this year.

According to LCP the updated guidance, published earlier this month (December 3), now makes clear that paying an asset to a scheme in satisfaction of an earlier obligation to contribute money will not attract tax relief.

Back in May, the Upper Tribunal ruled pension tax relief is not claimable on in-specie contributions, overturning a previous ruling where the judge had sided with provider Sippchoice stating that the meaning of "contribution paid" was "wide enough to cover a transfer of assets in satisfaction of a debt as occurred in this case".

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In-specie contributions are where assets such as property or shares are transferred into a Sipp without first being converted into cash.

The Upper Tribunal agreed with Sippchoice that HMRC’s pension tax guidance is not consistent with law and could be interpreted incorrectly.

Following this, HMRC has now clarified the “giving effect to cash contributions” guidance to try to help customers better understand HMRC’s long-standing approach to pension contributions made via a contractual offset agreement.

HMRC states: “This is a clarification and HMRC’s position remains unchanged.”

But a contractual offset agreement can lead to tax relief being provided.  

According to LCP, under this the member with the contribution obligation enters into an agreement with the trustees in which the trustees purchase the asset instead of receiving the contribution.  

For the asset transfer to give rise to tax relief the contribution effected in this way must retain its monetary form. 

HMRC has also amended another piece of guidance regarding asset-backed contribution arrangements.

Mixed views

Michael Baber, chartered financial planner and technical director at Hartley Pensions, said it was helpful to have more clarity from HMRC.

But said this decision could come at the detriment of clients.

Mr Baber said: “Unfortunately for clients this will mean that there will be very few pension providers that will offer this service as it becomes an expensive administrative task with a potential risk for future complaints requesting compensation if HMRC refuse to pay tax relief.”

Meanwhile, Richard Mattison, director at Whitehall Group, said HMRC’s pension manual has been “damaged” by the outcome of the case.

He said: “The HMRC Pensions Tax Manual is meant to be the Bible to which we all refer for technical answers on pension tax matters. 

“HMRC have always referred us to it when we approach them for guidance so it has clearly been used by them for the same purpose. 

“The SippChoice case has caused a lot of damage to this source of reference and the whole pensions industry has been left in a position where it can no longer have any confidence in anything it says. This is a sad and sorry state of affairs.”

He added: “We need confidence the rules are the rules and if the rules change we are given prior warning and the changes are not retrospective. How else can financial planning operate effectively?”