Sippchoice – Allowable contributions to a SIPP are restricted to payments of money

In HMRC v Sippchoice Ltd [2020] UKUT 0149 (TCC), the Upper Tribunal (UT) has allowed HMRC’s appeal and confirmed that 'contributions paid' to a SIPP are restricted to contributions of money and do not encompass transfers of non-monetary assets.

Background 

HMRC refused a claim for relief at source (RAS) from income tax  made by Sippchoice Ltd (Sippchoice), in relation to contributions to a self-invested personal pension scheme (SIPP) administered by Sippchoice.

The contributions had been made by four members transferring shares in companies to the SIPP. The only issue in the appeal was whether transfers of shares were “contributions paid” by those members, for the purposes of section 188(1), Finance Act 2004 (FA 2004), and therefore conferred an entitlement to RAS.

The facts relating to one member had been taken as representative. The member had filled in an application form to become a member of the SIPP and a contribution form which gave the net value of the proposed 'in specie' (i.e. non-monetary) contribution as £68,324. He had then transferred shares which had been valued by the SIPP company at £68,323.97. 

FTT decision 

As discussed in our previous blog on the FTT's decision, Sippchoice's appeal was allowed. The FTT held, in summary, that: 

(1) the four individuals had contracted with Sippchoice to pay particular sums of money to the SIPP, so that their subsequent transfer of shares was in satisfaction of those money debts; and 

(2) the expression ‘contributions paid’, in section 188(1), FA 2004, is wide enough to cover a transfer of assets in satisfaction of a debt.

HMRC appealed to the UT. 

UT decision 

The appeal was allowed.

The question to be determined by the UT was whether the transfers were ‘contributions paid’ by the scheme members within the meaning of section 188(1). Sippchoice argued that ‘contributions paid’ included the transfer of assets in satisfaction of a money debt and that each individual had made the transfer in satisfaction of such a debt.

With regard to the meaning of the expression ‘contributions paid’, the UT was of the view that the word 'paid', when viewed in isolation, was broad enough to encompass non-monetary payments. However, it had to be construed not in isolation, but in the context of Part 4, Chapter 4, FA 2004. In particular, section 195, FA 2004, which provides for transfers of eligible shares to be treated as contributions paid if the transfer takes place within a 90-day time limit, was an extension of the relief under section 188 and so informs the way that ‘contributions paid’ should be read. It made no sense to restrict relief for transfers of eligible shares to a 90-day period from acquisition if transfers of non-eligible shares or other assets were not so limited. This inconsistency disappeared if contributions paid was restricted to monetary contributions.

It said, at [31]:

"In our view, it makes no sense, in the context of provisions to relieve contributions to pension schemes, to restrict relief for transfers of eligible shares to a period of 90 days from acquisition if transfers of non-eligible shares or other assets are not so limited. That logical inconsistency disappears if “contributions paid” is interpreted as restricted to monetary contributions."

The UT also considered whether transfers of non-cash assets which are made in satisfaction of a pre-existing money debt could be ‘contributions paid’, within section 188(1), FA 2004. For reasons similar to those discussed above, the UT held that an agreement to accept something other than money as performance of an obligation to pay in money does not convert the transfer of shares (or other assets) into a payment in money. 

Sippchoice had relied on statements contained in HMRC's manuals (Pensions Tax Manual) which were consistent with its case. The UT agreed with Sippchoice that the statements were consistent with its case but unfortunately for Sippchoice, this argument carried little weight as statements contained in HMRC manuals merely reflect HMRC’s interpretation of the law and do not have the force of law (and Sippchoice had not in any event led any evidence to show it had relied on the guidance contained in the manuals).   

Finally, the UT said that, in the event that it was wrong in its conclusion that transfers of non-cash assets made in satisfaction of pre-existing money debts are not 'contributions paid' within section 188(1), FA 2004, it considered that there had never been a contractual obligation to make a monetary payment as the company and individuals had understood from the beginning that the contributions were to be in-specie.

Comment 

It is unfortunate that taxpayers who followed HMRC's own manual were unable to obtain the relief which they believed, understandably, was due. 

In addition to those immediately affected, this decision is likely to have consequences for many other SIPP companies and members. The tax relief that had previously been granted in respect of such in specie contributions may need to be repaid to HMRC, and it is likely that HMRC will now seek to recover  tax from SIPP (and possibly small self-administered scheme (SSAS)) providers, as well as from individual pension scheme members. 

This will raise a number of issues for both providers and members. Most SIPP / SSAS providers include in their terms and conditions and/or as part of the trust documentation for the SIPP / SSAS that if a tax charge arises, they can claw any such charge back from the assets in the SIPP or from the individual members. Whether or not such a claw back itself triggers a tax charge is open to debate, but if pension funds are depleted and/or taxpayers have to pay out money to meet unexpected tax charges,  many members may feel aggrieved especially in circumstances where they would have chosen to make a cash contribution had they known that their in-specie contribution risked a tax charge.

It remains to be seen whether Sippchoice will seek to appeal the UT's decision. 

The decision can be viewed here.