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Plenty of suspense but scant relief for in specie contributions

During the summer, HMRC unexpectedly began challenging SIPP providers on whether net pension contributions can be made in specie (that is, a change of legal ownership without sell/buy transactions).  The issue currently seems restricted to net contributions ‘paid’ under the relief at source method, whereby for every £80 contributed there is usually a top up of £20 tax relief from HMRC. 

However, there is concern that HMRC might look at other in specie contributions, such as those made by companies as part of funding a final salary scheme. 

In common with most other SIPP providers, we therefore felt obliged to suspend allowing net in specie contributions.  For our SSAS, we are warning that corporation tax may also be at risk if the company makes in specie contributions.


Contributing assets in specie can be a useful option if your clients hold assets which they ultimately want to end up holding in their pension fund, especially if those stocks are expensive to sell and buy back or illiquid.   For transferring quoted stocks, it is potentially easier to sell and then buy back the stock, though they would be out of the market and there could be trading costs.  This doesn’t work so well for commercial property and so either there has to be a cash contribution followed by asset purchase, or a contribution in specie.

Earlier this year, HMRC made a change to one of its forms, requiring providers to separate out cash and in specie contributions in their claims for relief at source.  Following this, a number of SIPP providers received a demand from HMRC for further information and documentation.  We were not one of those SIPP providers.  In the meantime, we understand, HMRC withheld all tax relief (i.e. on cash contributions as well as in specie).

The first news of this was shared at our industry body AMPS (the Association of Member-directed Pension Schemes) in July by other member firms and hit the trade press in August as more information emerged.  HMRC themselves have so far declined to comment.  The challenge leaves the industry incredulous: AMPS' understanding of HMRC's requirements was formed in 2007 following extensive liaison and a summary has long been available via HMRC’s Pensions Tax Manual.  Under the section “Giving effect to cash contributions” HMRC explain that “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.”

Paid for

So what’s it all about?  Well, it all hinges on what most people would regard as an arcane legal debate, principally around a single word, ‘paid’, which appears in the relevant sections of the Finance Act 2004.

Contributions are most frequently paid in cash.  However, as noted in HMRC’s manual, an agreed cash contribution could subsequently be settled by the transfer in ownership of assets such as property or other investments. 

There was an understanding between AMPS (representing the SIPP providers) and HMRC as to how the option described by HMRC could be achieved in practice.  This involved, amongst other things, members agreeing to a certain fixed cash contribution and then later agreeing with the SIPP provider that the contribution debt could be settled by a transfer of assets, with any balance then accounted for by a cash transaction.

Many seemed to regard this as a cumbersome, bureaucratic process and we understand that it put some off contributing at all.  Certainly, it causes additional expense for providers which, inevitably, they have to charge for.


AMPS are in discussion with HMRC about their apparent u-turn and obviously the time this will take and the outcome cannot be known.  Given that most providers have suspended this facility, it seems an important situation to explain.

One of the frustrations is that we don’t know why this has suddenly become an issue, we can only speculate.    

The separation of cash and in specie contributions in the reclaims that providers make will have made HMRC aware of the extent the facility is used – perhaps it was a ‘gulp’ moment.  Where pension and ISA assets are held on platforms, it is potentially easier to fund the former with the latter – perhaps some have made this point particularly effectively.   

Alternatively, HMRC may have unearthed a scam, triggering a widespread investigation to discover its extent.  It is certainly an area which could be abused if, for example, the transferred asset is overvalued.  A promised contribution of £8,000 net settled by an asset valued at £8,000 but more realistically worth £4,000 would create artificial tax relief of £1,000 (and possibly a tax credit for a higher rate tax payer as well). 


The issue with contributions paid net under relief at source could spread to other contributions, even those made to fund final salary schemes.  There has already been commentary on this.  Company contributions are tax efficient because of the corporation tax relief, as opposed to tax relief for the member.  We do not have news on whether corporation tax relief on in specie contributions is being challenged, though there would be a delay as the tax relief is claimed after the company’s year-end rather than on a monthly basis which is the case for net member contributions.

Our view

HMRC could be pulling at a long string with a big beast on the end of it: final salary pension schemes.  Many employers have used in specie contributions of company assets to fund their pension schemes.  The provisions that allow for this are in a different section of the same legislation and use the same language.  We don’t see that being challenged.

Whatever the reasons behind this action, delaying tax relief on cash contributions, which are not in dispute, seems wrong – everyday people trying to do the right thing by saving in a pension should not be caught in the cross-fire.  It seems unlikely that the scale of the tax relief is the source of the issue.  If it were, it would not invalidate the rules: they would have to be changed through due process. 

More likely, HMRC are investigating something, which would also explain the absence of comment.  It should also mean a fairly narrow focus rather than rounding up en masse those contributing in specie.  The lack of comment from HMRC is extremely disappointing as SIPP members are being denied a useful feature.

Were HMRC to remove the facility for in specie contributions, there would be undesirable unintended consequences.  Some may simply not contribute, diminishing their retirement provision.  Others will risk ‘time out of the market’ and suffer trading costs, perhaps on a regular basis at the beginning of each tax year, for no reason other than the removal of the facility.

In any event, advisers should review their clients and contact those who make in specie contributions.  There may be other options to achieve the same end such as contributing cash over a period of time, until the pension has the funds to purchase the asset, or using a bridging loan to finance a contribution which is then used to purchase the asset.  There are pros and cons to these options.  Remember, too, that connected transactions have to be shown to be at market value.  It is always a good idea to keep your chosen provider informed, too.

Author: Andy Leggett

[Sponsored article by Barnett Waddingham]



Author: Andy Leggett
Posted: Tuesday, October 25, 2016 | 8:02:21 AM

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