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.
As the wording “contributions paid” in section 188 of the Act only included monetary contributions, the existence of an obligation to pay an amount of money and the transfer of shares in satisfaction of that amount did not change the fact that it was a transfer of non-money assets and therefore not a tax relievable contribution.
Impact on financial advisers and Sipp providers
This decision is significant for Sipp providers currently dealing with HMRC on relief at source (RAS) claims regarding in-specie member contributions.
As the law stands, any such contributions will not benefit from income tax relief under section 188 of the Act, meaning that Sipp scheme administrators will not be able to claim relief from HMRC on these transactions.
Financial advisers will need to factor in the decision when advising members on setting up Sipps and contributions going forward. Clients are also likely to seek advice on their potential tax liability in relation to any past in-specie contributions.
Is it a change in position by HMRC?
Concerns were first raised around a potential change in position by HMRC in 2016, when changes were made to the information requirements on RAS claims forms.
These changes required Sipp providers to disclose additional information in relation to contributions being made.
Following this, anecdotal evidence from the time suggests that HMRC realised the extent of in-specie contributions and believed firms were not following the guidance relating to valuing such contributions. As a result, it opened a number of enquiries into RAS claims.
HMRC’s stance is that it has not changed its position. In a newsletter published in 2017, HMRC stated that its view has always been that the only contributions on which tax relief can be claimed are those made in cash.
However, the decision acknowledges that HMRC’s previously published guidance was unclear and there may have been scope for advisers to interpret it differently from HMRC’s current position.
Guidance has no legal force
The decision is a reminder to financial advisers that HMRC guidance does not have legal force.
