Sippchoice v HMRC- a change in the meaning of in-specie contribution

In HMRC v Sippchoice the Upper Tax Tribunal (UTT) held that only monetary contributions paid into a SIPP can benefit from income tax relief.

This decision will likely have significant implications for SIPP providers and could result in further recovery attempts by HMRC.

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 into their SIPP to an agreed value (the Contributions).

HMRC’s own guidance, in the Pensions Tax Manual, 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 benefit from the relief from income tax in section 188(1) Finance Act 2004 (the Act).

Sippchoice’s claim to relief under the Act in respect of the Contributions was, however, rejected by HMRC on the basis that relief was only available when contributions were made via a monetary contribution.

Sippchoice appealed this decision. The First Tier Tax Tribunal (FTT) allowed the appeal, holding that the phrase “contributions paid” in s188 of the Act was wide enough to cover transfer of assets as well as cash.

HMRC appeal this decision to the UTT.

HMRC’s position

HMRC argued that section 188 only granted relief for monetary contributions, not transfers of assets, even if this satisfied a pre-existing obligation to provide payment. They stated 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. HMRC therefore contended that, within this context, contributions paid should be limited to monetary contributions only, avoiding any unfavourable treatment for eligible shares. 

Decision

The UTT granted the appeal, overturning the FTT’s previous ruling.

It agreed with HMRC that the term “contributions paid” must be interpreted within the context of the Act, finding that the separate treatment of eligible shares (in s195 of the Act) must result in contributions paid being limited to monetary, rather than in-specie, contributions, to prevent unequal treatment for eligible shares, which was surely not Parliament’s intention when creating the legislation.

The UTT considered the impact of HMRC’s statement in the Pensions Tax Manual (PTM) regarding in-specie relief, which HMRC accepted was “unclear”. It held that this was guidance only, representing HMRC’s view of the statute, and not a statement of the law. The Act of course was a statement of the law and took precedence. The (PTM) is only guidance and should be treated as such.

The UTT also considered whether the contribution forms would make any difference to the potential for relief. As the wording “contributions paid” in s188 of the Act only included monetary contributions, a pre-existing obligation to pay, which shares were transferred to settle, could not change this.

Therefore the transfer of shares did not qualify for income tax relief as this was not a monetary contribution.

Potential Impact

This is an important decision which may have significant consequences for SIPP and SSAS providers currently dealing with HMRC on relief at source matters regarding in-specie contributions. Any such contributions made by a member will not benefit from income tax relief under s188 of the Act, meaning that SIPP providers will not be able to claim income tax back from HMRC on these transactions. Similarly, SIPP and SSAS providers will want to consider how this decision may influence the structure of future contributions.

The UTT’s judgment was not based on the specific facts of the Sippchoice documentation or in-specie contributions processes, but rather rooted in an analysis and interpretation of the relevant legislation. It will be difficult, therefore, for other SIPP providers to argue this decision does not apply to their own in-specie contribution relief claims.

Finally, the UTT’s treatment of the guidance in the (PTM) confirms an unprecedented lack of weight to HMRC guidance. Even where HMRC offered in submissions that its guidance was “unclear” at best, this had no bearing on the UTT’s outcome as it effectively disregarded the guidance in favour of the legislation. The UTT noted that Sippchoice had not run a specific argument of reliance on the PTM, but even so the decision should caution SIPP providers when considering HMRC guidance going forward.

It remains to be seen what happens with any potential appeal in the future by Sippchoice, but for now this judgment is certainly one to carefully consider in terms of potential market and portfolio impact.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at May 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions.