Share sale to SIPP leads to pension surcharge

In Guy Boardman v HMRC [2022] TC8558, a taxpayer's plan to profit from selling his shares at an inflated price to his Self Invested Pension Plan (SIPP) backfired and resulted in an unauthorised payment charge. Payments from an opaque LLP were chargeable as distributions.

• Mr Boardman engaged a promoter who supplied tax-efficient investments in hotel projects in Montenegro.
• In May 2011, Mr Boardman subscribed for shares and acquired a Limited Liability Partnership (LLP) interest in ‘Omega 4’ for £300,000 which was funded with £10,000 of his own funds and £290,000 of loans from the promoter.
• Shortly afterwards, Mr Boardman sold the shares to his Self-Invested Personal Pension (SIPP) for £288,750.
• In March 2012, Mr Boardman acquired further shares and partnership interest in ‘Omega 9’ for £100,000 funded largely by loans provided by the promoter.
• Shortly afterwards, Mr Boardman sold his Omega 9 shares to his SIPP for £96,385.
• HMRC raised enquiries contending that the SIPP had paid in excess of the third party market value of the shares and raised Unauthorised Payment Charges accordingly for the excess.
• HMRC also contended the LLPs were not trading and as a consequence were opaque. Payments from them should be treated as distributions for tax purposes.
• Mr Boardman Appealed.

The FTT determined that:

• An unauthorised payment surcharge equal to the difference between the market value of the shares and the price the SIPP paid for them arose.
  • The transaction between Mr Boardman and his SIPP had not been undertaken at arm's length as:
    • There was no evidence that the pension provider (or Mr Boardman) had undertaken any due diligence to ascertain the value of the shares purchased.
    • The pension provider had simply acquired the shares on the instructions of Mr Boardman.
    • That the acquisition was at the same price as the share issue was not of itself an indication the purchase was at arm’s length.
  • The price paid for the shares was not the arms-length price as:
    • A hypothetical purchaser would have understood that the shares were connected to the LLP interest.
    • Available documentation showed the company assets consisted of an LLP interest and that LLP had paid out all of the capital contributed to it.
    • Individual members received LLP profits in preference to corporate members, reducing the effective cost of the shares to nil.
    • The underlying hotel development was delayed at the time of purchase and additional financing would be required to complete it.
  • It was not just and reasonable to remove the unauthorised payment charge as:
    • The policy objective for the surcharge was to recoup the tax relief obtained on inward contributions and tax-free growth within the scheme. This limited the circumstances in which it is not just and reasonable to impose a surcharge.
    • Mr Boardman had not sought advice from anyone other than the promoter in respect of the investment or the later share sale.
  • HMRC’s enquiry into the LLPs determined they were opaque and Mr Boardman could not challenge that notion in an individual capacity.
  • As the LLP was found to be opaque, distributions they made to Mr Boardman were taxable despite:
    • The amounts not being physically paid to him as they were set off against loans made to him.

The appeal was dismissed.

Useful guides on this topic

Pensions: Unauthorised payment charges
What is a pension unauthorised payment? When does a tax charge arise? Who pays the charge? 

How to appeal an HMRC decision
Disagree with an HMRC decision? How to appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

Partnerships: Unlimited or limited
What types of partnerships are there? What are the differences?

External links

Guy Boardman v HMRC [2022] TC8558