Pension providers and clients ‘left in limbo’ after in-specie hearing vacated

Hannah Godfrey reports...

Pension providers and investors have been “left in limbo” after a case looking at in-specie contributions to pensions was vacated from the Upper Tribunal hearings register.

The case – HM Revenue & Customs (HMRC) vs Sippchoice – was scheduled to be heard on a day between 20 May and 22 May but it was vacated shortly beforehand.

According to Dentons technical sales director Stephen McPhillips, the scheduled hearing did not take place last month because of unforeseen personal circumstances affecting one of the legal representatives involved. As a result it has been re-scheduled until late February 2020.

Pushing the date of the hearing back by nine months means there will be a further delay for savers who do not know whether they will need to repay tax relief on their investments. Also, pension providers like McPhillips’ Dentons, which owns Sippchoice, will continue to not allow new in-specie contributions.

The case so far

An in-specie contribution is where assets such as property or shares are paid into a pension instead of cash and, prior to 2016, tax relief could be claimed on all pension contributions, including in-specie.

However, at the start of the 2016/17 tax year, HMRC changed its ‘relief at source’ claim forms, requiring providers to separate out cash and in-specie contributions in their claims for tax relief.

The taxman became concerned the proper processes for non-cash contributions were not being followed. It was worried assets that did not have a readily realisable value, such as unquoted shares and intellectual property, had been overvalued.

If the value of the asset was inflated or high at the point of contribution then this would increase the amount of tax relief that could be reclaimed.

Then, in 2018, HMRC lost an in-specie-related case to self-invested personal pension provider Sippchoice.

HMRC had denied claims for tax relief at source where clients had made in-specie contributions to their SIPPs but a tribunal judge ruled HMRC could not do that. After its loss, HMRC was granted permission to challenge the ruling, which has lead to the current situation.

‘Complex corrective exercise’

McPhillips confirmed neither Dentons nor Sippchoice would permit new in-specie contributions while the appeal was ongoing.

However, using a different process, McPhillips said the firm can obtain the same end result of an in-specie transfer through a different method.

He explained: “The same net result of an in-specie contribution of an asset can be achieved by having a cash contribution paid into the pension scheme initially, with that cash then being used by the pension scheme to buy the subject asset from the members or member’s company at a market value.”

Greg Kingston, who is group communications director at Curtis Banks – another provider that has stopped accepting in-specie contributions until there is a definitive case outcome – said: “Pension providers and, more importantly, their affected clients will be left in limbo for a while longer, wondering if their potential tax exposure will be realised.

“The industry has known that the corrective exercise, if required, will be really complex as it will involve clients’ individual tax self-assessments, and some of the clients may even no longer be clients of the SIPP provider or adviser.”