In HMRC v Sippchoice Ltd  UKUT 0149, the Upper Tribunal (UT) denied Income Tax relief for in specie contributions to a pension plan. Transfers of non-cash assets are not ‘contributions paid’.
Members of a Self-Invested Personal Pension (SIPP) notified the SIPP of their intention to make cash contributions to the plan.
- The trustees agreed to accept a transfer of shares of an equal value in satisfaction of the contribution. This was based on the widely held understanding that a contribution in specie would be treated in the same way as cash and Income Tax relief would be available.
- HMRC’s pensions tax manual at PTM043310 reads “… 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”.
- The First Tier Tribunal (FTT) confirmed that the contribution ‘in specie’ of shares into the SIPP amounted to a payment in satisfaction of a legally binding monetary obligation to make a contribution and was allowable for Income Tax.
- HMRC appealed on the grounds that the FTT erred in law in construing the term ‘contributions paid’ as concluding that the individuals had entered into a binding contract obliging them to pay sums of money to the SIPP, and/or, in determining the terms of any such contract.
The UT allowed the appeal saying that the expression 'contributions paid' in s.188, Part 4 Chapter 4 of FA 2004 is restricted to contributions of money, whether in cash or other forms.
- If parliament had intended the definition to be extended to include a transfer of assets or any other transfer of 'money’s worth', it would have explicitly included this in the legislation as it was in s.161, at Part 4 Chapter 3 of FA 2004.
- Parliament would also not have separately included the specific conditions in s.195 FA 2004 which provide for the transfer of certain shares to be treated as payment of contributions.
- As a result, 'contributions paid' cannot include settlement by transfer of non-monetary assets even if that transfer is made in satisfaction of an earlier obligation to contribute money.
- There was no legally binding monetary obligation to make a contribution; the conditions for a legally binding contract, that there must be an offer, an acceptance, consideration and the intention to create legal relations, had not been fulfilled.
The UT considered the fact that the HMRC’s pensions manual contained sections which supported the taxpayers’ case and it was of little significance. They were not arguing that they had relied on the manual or that they had a legitimate expectation that HMRC would not deviate from their own guidance.
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