Sippchoice Ltd: Taxpayer can claim income tax deduction for contribution in specie to SIPP

In Sippchoice Ltd v HMRC [2018] UKFTT, the First-tier Tribunal (FTT) has held that a taxpayer can obtain tax relief at source in respect of contributions made to a Self-Invested Pension Plan (SIPP) settled in the form of unquoted shares.

Background

Sippchoice Ltd (the Appellant) made a claim for relief from income tax at source following a contribution made to the Sippchoice Bespoke SIPP by Mr Carlton, one of the members of that scheme. The net value of the contribution was £68.342.00, which comprised an in specie transfer of unlisted ordinary shares in a company. 

The trust deed which regulated the SIPP (the Deed), permitted contributions to be made in accordance with the relevant legislative scheme for contributions to pension funds, contained in Finance Act 2004 (FA 2004). The Deed also regulated the manner in which those contributions were to be made. 

In specie contributions are popular with many investors in SIPPs, because transfers of this type do not attract the costs associated with liquidating an asset. Mr Carlton completed a Contribution Form in which he specified the precise nature of the contribution he was to make and its value. The value of the shares was not disputed by HMRC. The form indicated that Mr Carlton's commitment was 'irrecoverable and binding'.

A relevant UK individual, who is a member of a registered pension scheme, is entitled to tax relief in respect of 'relievable pension contributions' that are 'paid' into a scheme during a tax year. The relevant provisions are set out in sections 188 and 195, FA 2004. 

HMRC's manual (PTM 042100) appeared to permit such non-cash contributions to be made provided: (1) a clear obligation exists on the member to pay a specific monetary sum; and (2) there is an agreement between the trustees and the member to pass an asset to the scheme by way of consideration.

HMRC denied the relief claimed and the Appellant appealed to the FTT.

FTT decision

HMRC's primary argument was that the meaning of 'contributions' in FA 2004, meant 'money' payments. HMRC contended that a contribution of 'money's worth' was not sufficient and that the language in the legislation should not be so construed. 

Further, HMRC maintained that the Contribution Form which Mr Carlton had completed was not a deed. Consequently, although it was a promise to pay, it was not legally binding or enforceable. 

The FTT, in accepting that the Contribution Form was not of itself binding, considered the circumstances as a whole, including the Deed and associated rules and terms and conditions of the SIPP. The FTT concluded that there was an intention between the parties to create legal relations and that there was a legally binding obligation on Mr Carlton to make a contribution in the sum specified in the Contribution Form. The FTT also noted that this approach accorded with HMRC's own Guidance PTM 042100 where it is stated: 

" … contributions to a registered pension scheme must be a monetary amount. However, 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."

The FTT also dismissed HMRC's narrow interpretation of the word 'contributions' as only being relevant to money payments. The FTT noted  that there was a significant body of case law in multiple contexts which dealt with the notion of 'contribution' which demonstrated a much wider interpretation than the one HMRC was advocating. 

HMRC sought to rely on the Explanatory Note to FA 2004, to support its arguments, which provides: 

"Subsection (2) [of section 188] defines "relievable pension contributions" as contributions paid by or on behalf of the individual and so includes third party contributions - subject to exceptions in subsection (3). The term "contribution" is taken to mean a monetary contribution unless otherwise specifically provided for."

HMRC argued that the Note assisted in defining the scope of the provision and supported its narrow interpretation of the legislation. The FTT was not persuaded and refused to look behind the words used in the legislation itself. The FTT commented that Explanatory Notes do not form part of the relevant legislation and, citing Sun Life Assurance Company of Canada (UK) Limited v HMRC [2010] STC 1173, explained that such notes do not give HMRC a 'second bite of the cherry' in seeking to define the scope of legislation which does not lead to a result which was not intended. 

Comment

HMRC has been adopting an increasingly ridged view of the types of contributions which qualify for relief. Several aspects of the pension provisions contained in FA 2004  have caused HMRC some anxiety in recent years when the scope of those provisions has become clear.  Nevertheless, taxpayers have the right to rely on the clear wording of the legislation in order to obtain relief. 

Many pensions administrators have faced difficulties following unexpected restrictive decisions from HMRC in respect of in specie transfers to SIPPs. This decision will provide some comfort although it remains to be seen whether HMRC will seek to appeal the decision to the Upper Tribunal.

A copy of the decision can be viewed here.