26 May 2020
HMRC have successfully reversed an earlier first tier tax tribunal decision concerning tax relief on certain non-cash pension contributions. This is a high profile tax ruling with potentially huge consequences for holders and administrators of Self Invested Personal Pensions (SIPPs). This might be of particular importance where employees and executives used shares acquired in connection with company incentive plans to fund their personal pensions.
The Upper Tribunal granted an appeal by HMRC in the matter of its dispute with Sippchoice Ltd, a SIPP provider (The Commissioners for Her Majesty’s Revenue and Customs and Sippchoice Ltd,  UKUT 149). The effect of the ruling is that income tax relief on contributions to SIPPs is permitted only where those contributions into SIPPs are paid in money and not "in specie" (such as shares or other types of property).
Broadly, individuals can get income tax relief on certain pension contributions. Previously, many individuals made contributions of shares or other property into their SIPPs and obtained income tax relief on those contributions. They followed a procedure - since stopped - laid down in guidance by HMRC at the time and substantial amounts of income tax relief were claimed.
The Upper Tribunal has given us another reminder that HMRC’s guidance is not the law. It ruled that these historic contributions are not, as a matter of the law, eligible to attract the tax relief. As a result, SIPP policy holders and providers must now consider how the tax relief granted on previous “in specie” contributions might be paid back to HMRC.
We await a decision whether Sippchoice appeals this decision.
Yet again, and frustratingly, we see that following HMRC’s guidance is no substitute for applying the law. Policy holders and administrators will now be left in a tricky and potentially challenging spot where, if there is no appeal, HMRC looks for repayment of these amounts.
Whilst they and their advisers will doubtless claim that they had a legitimate expectation that HMRC would apply its own original guidance, we have seen in other high profile cases (i.e. the "Hanover" case) how difficult it is to sustain this argument. Policy holders may have to accept that they will have smaller pension pots than they were anticipating.
Although the tax relief on non-money pension contributions has since been stopped, if your company pension arrangements previously allowed or facilitated these “non money” contributions in SIPPs in connection with your other share plans, you will need to consider carefully how you and your administrators will communicate this issue with the policy holders who may be affected by this decision.. We must expect to see HMRC revising its approach and hope to see guidance soon. There are a number of complicated issues still to address - for example what will happen to those retirees now drawing down on their SIPP fund? In the interim, we think it’s wise to assess now whether and to what extent this issue might affect your current or former employees and work with your advisers to prepare your approach.
If you have any questions about this alert, please do contact us.