HMRC wins landmark non-cash pension tax relief ruling

HMRC has won a landmark case at an Upper Tax Tribunal, which has ruled that tax relief cannot be claimed on ‘in-specie’ or non-cash contributions to personal pensions, potentially opening the way for the tax authority to reclaim millions

‘In-specie’ contributions to personal pension schemes refer to non-cash assets, such as shares or commercial property which are transferred into a self invested personal pension (SIPP) without being converted into cash first.

SIPP providers offered this as a service to clients up until 2016, when HMRC began to block tax relief for individuals on non-cash assets over concerns about possible abuse of the system.

Pension provider Sippchoice, now owned by Dentons Pensions Management, originally won its case at a First Tier Tribunal (FTT) in 2018, after HMRC refused to accept a claim from one of its clients for tax relief relating to a £68,342 contribution made in the period 6 March to 5 April 2016.

At the time the FTT judge said the meaning of ‘contribution paid’ was ‘wide enough to cover a transfer of assets in satisfaction of a debt as occurred in this case’.

HMRC appealed against the ruling at the Upper Tribunal. [The Commissioners for Her Majesty’s Revenue and Customs and Sippchoice Ltd, [2020] UKUT 149].

The Upper Tribunal stated: ‘The only issue in the appeal was whether transfers of shares were “contributions paid” by those members within the meaning of section 188(1) Finance Act 2004 (FA 2004) and therefore conferred an entitlement to relief from income tax.’

HMRC put forward two grounds for appeal. Firstly, it maintained the FTT erred in law in construing the expression ‘contributions paid’ in section 188(1) FA 2004, arguing that contrary to the FTT’s conclusion, that section gives relief for money payments only and not for transfers of assets. HMRC said this was true, whether or not the asset is transferred in satisfaction of a money debt.

Secondly, HMRC said the FTT was wrong to conclude that the individual making the contribution had entered into a binding contract obliging him to pay sums of money to the SIPP and/or erred in law in determining the terms of any such contract.

The Upper Tribunal agreed with HMRC the expression ‘contributions paid’ in section 188(1) FA 2004 is restricted to contributions of money (whether in cash or other forms).

The tribunal judges stated: ‘If, as we have found, “contributions paid” in section 188(1) FA 2004 means paid in money then it cannot encompass settlement by transfer of non-monetary assets even if the transfer is made in satisfaction of an earlier obligation to contribute money.

‘An agreement to accept something other than money as performance of an obligation to pay in money does not convert the transfer of shares (or other assets) into a payment in money.’

For those reasons, the tribunal found that the individual was never under any contractual obligation to pay £68,324 in money to Sippchoice.

In its arguments, Sippchoice drew attention to the wording of HMRC’s internal Pensions Tax Manual at PTM042100, which stated: ‘As explained above, contributions to a registered pension scheme must be a monetary amount. However, it is possible for a member to agree to pay a monetary contribution and then to give effect to the cash contribution by way of a transfer of an asset or assets.’

The judges agreed that the natural reading of this passage is that HMRC did not see any objection to a promise to make a monetary contribution to a pension scheme being satisfied by a transfer of an asset or assets where the member and scheme administrator both agreed to it.

The tribunal pointed out that ‘this is even more clearly stated in relation to employer’s contributions in HMRC’s pensions tax manual at PTM043310: “… it may be possible to structure a transaction so that a monetary contribution is achieved without the need for cash to pass between the employer and the pension scheme.”’

However, the tribunal judges said: ‘Statements in HMRC’s manuals are merely HMRC’s interpretation of the law in their internal guidance and they do not have the force of law.

‘We must interpret the legislation in accordance with the principles of construction described above and if we conclude, as we have, that the legislation bears a different meaning to that found in the HMRC manual, the legislation must be preferred.’

As a result, the tribunal found in HMRC’s favour, and said that in-specie payments to a SIPP are not eligible for pension tax relief.

A spokesperson for Sippchoice said it plans to look into appealing the Upper Tribunal’s decision.


An HMRC spokesperson told Accountancy Daily: ‘We welcome the tribunal’s decision and will consider the judgement further in due course.’

However, it did not confirm whether it would seek to recoup the money handed out in tax relief.

The Commissioners for Her Majesty’s Revenue and Customs and Sippchoice Ltd, [2020] UKUT 149

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