Many of us relied on the guidance within these technical manuals, written by those who should know and understand the legislation, to help us in our day to day lives. They meant that we didn’t have to trawl through vast amounts of legislation to prove that something was within scope or not.
Reading most legislation is time consuming enough, then factoring years of amendments that haven’t been consolidated within the original legislation makes it even worse. The online manuals also cover things that aren’t in legislation, such as in-specie contributions where assets such as property or shares used to make contributions into a SIPP, and the guidance gives you an idea of HMRC’s thoughts on the subject.
However, following the SIPPchoice case that held that only monetary contributions paid into a SIPP can benefit from income tax relief, we now can’t be sure that we can rely on these documents. We are left second guessing anything that can’t be substantiated in legislation, even if there are years of acceptance of how it works.
It has been pointed out to HMRC that the end result of this fiasco will be detrimental to clients who may have made in-specie pension contributions in good faith, following others who had successfully done it before them. It has even been explained that, if providers knew these contributions wouldn’t have been accepted, they wouldn’t have even attempted it because there are always alternatives to consider.
Take, for example, a case of a listed stock that an individual owned in their own name. They could sell it down, make a contribution and buy the stock back in the pension scheme. If this were all fine and above board, tax relief would be granted.
Following conversations with the industry and guidance in the PTM, it was thought that the same could be achieved using an in-specie process (provided a promise was made to pay a cash amount but was fulfilled with the share as they had no cash). This, we now know, isn’t acceptable even if all the hoops were jumped through in the right order and documented correctly. However, should the individual take a loan, pay the contributions and buy the share from themselves, this would be accepted and tax relief would be granted.
As you can see, all three options could result in the same outcome, with more or less hassle and investment risk depending on the process.
AMPS (the SIPP providers' trade body) has called on HMRC to acknowledge this, draw a line under all that has gone before and move forward with their effective ban on in-specie contributions to avoid putting clients at risk of poor outcomes but not to penalise those that had already done this in good faith.
We do understand that if the issue isn’t the contribution itself but the asset valuation, this would be another matter and should be addressed separately. The process wouldn’t actually change this issue and the same problems could occur.
With all the difficulties this year, this appears to be one argument that is unnecessary. However, to date, this has all fallen on deaf ears and providers are having to address any issues individually with HMRC.
Claire Trott is director and head of pensions strategy at Technical Connection, part of St James’s Place Group, and chair of the Association of Member-Directed Pension Schemes (AMPS) - the SIPP and SSAS providers body.