HMRC has won its appeal against the ruling that in-specie contributions made by a member of a self-invested personal pension scheme (Sipp) can receive relief from income tax.
In HMRC v Sippchoice Limited, the Upper Tax Tribunal (UTT) held that only monetary contributions paid into a Sipp, not non-cash assets, can benefit from income tax relief.
This decision will likely have significant implications for Sipp providers and could result in further attempts by HMRC to recover tax relief. Financial advisers should consider how they advise clients setting up and contributing to a Sipp in light of the decision.
The Facts
Four members set up Sipps administered by Sippchoice, a Sipp provider. Each completed a contribution form, confirming that they would provide an in-specie (non-cash) contribution of shares into their Sipp to an agreed value.
HMRC’s guidance, in the Pensions Tax Manual (PTM), stated that it may be possible for transactions to be structured so that contributions are made without the need for cash to pass into the scheme.
Such contributions would be within the scope of tax relievable contributions under section 188(1) Finance Act 2004.
Sippchoice’s claim for relief under the Act in respect of the contributions was, however, rejected by HMRC on the basis that relief was only available on contributions of money to a registered pension scheme such as the Sipp.
Sippchoice appealed this decision. The First Tier Tax Tribunal (FTT) allowed the appeal, holding that the phrase “contributions paid” in section 188 of the Act was wide enough to cover a transfer of assets in satisfaction of a debt, so that the transfers of shares were tax relievable member contributions.
HMRC appealed this decision to the UTT. It argued that section 188 only granted relief for monetary contributions, not the transfer of an asset, even if the asset is transferred in satisfaction of a monetary debt.
HMRC submitted that “contributions paid” should be considered within the context of the Act.
Subsequent sections set out specific rules for “eligible shares” to receive tax relief, including a time limit for completing the transfer to a scheme.
In this context, HMRC contended that contributions paid should be limited to monetary contributions only, in order to avoid any unfavourable treatment for eligible shares.
Decision
The UTT granted the appeal, overturning the FTT’s previous ruling.
The tribunal agreed with HMRC that the term “contributions paid” must be interpreted within the context of the Act.
It held that the separate treatment of eligible shares (in section 195 of the Act) must result in “contributions paid” being read as limited to monetary contributions, rather than a transfer of assets. This would prevent the unequal treatment of eligible shares, which was surely not Parliament’s intention.
The UTT also considered whether it would make any difference to the potential for relief if the in-specie transfer was made in satisfaction of an obligation to pay a monetary debt to the Sipp.
