The Upper Tribunal recently ruled for HMRC in a case involving a certain type of pension contribution. There’s now concern that it will claw back tax relief from others in the same situation. Is this something you should be worried about?

In specie contributions

For a long time, pension companies accepted the transfer of quoted shares and certain other assets as contributions to pension schemes. These are called in specie contributions and until recently were relatively commonplace. HMRC happily accepted the arrangements until 2016 when it began to refuse some of these contributions as not meeting the requirements of the pension rules.

Money payment

To qualify for tax relief pension contributions must be paid in the form of money. So that in specie contributions met this condition a pension company would create a legal charge (a debt) equal to the value of the asset being used for the contribution. The transfer of the asset satisfied that debt. For most tax (and other) purposes the settlement of a debt with an asset counts as a money transaction which meant the pension rules weren’t breached. In 2016 HMRC appeared to relax its approach further while all the time preparing to challenge in specie contributions at a fundamental level.

HMRC guidance

In mid-2016 HMRC changed its internal guidance to say that the creation of the legal charge wasn’t necessary, and an in specie contribution could be made by directly transferring an asset without the need to create a debt. That would have made in specie contributions simpler. However, HMRC quickly restated its original view that the only way an in specie contribution could work was to use the legal charge method. Meanwhile it started refusing tax relief for some in specie contributions.

The Sippchoice case

HMRC challenged an in specie contribution made to Sippchoice Ltd (S) by one of its customers. HMRC argued (contrary to its published view) that the settlement of a debt wasn’t a money payment. S appealed against HMRC’s decision and in 2018 the First-tier Tribunal (FTT) ruled in S’s favour. The judge said that the meaning of “contribution paid” was “wide enough to cover a transfer of assets in satisfaction of a debt” . HMRC appealed against the FTT’s decision.

The Upper Tribunal

The judges in the Upper Tribunal (UT) decided that the wording of the legislation clearly required contributions to be paid in money. They said: “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.” In other words, money means money and nothing else will do. The UT overturned the FTT’s ruling.

Possible fallout

HMRC says it’s considering its next move. This raises the prospect of thousands of pension savers facing hefty tax assessments demanding tax relief back. Naturally, the pensions industry is up in arms and may back an appeal by S to the Supreme Court. Our view is that HMRC will not be able to demand tax relief given before 6 April 2016 as the rules don’t allow it unless you have acted carelessly in making a claim. It can hardly argue carelessness given that its guidance clearly stated that in specie contributions were acceptable. Naturally, we’ll keep you informed of developments.

The Upper Tribunal overturned the earlier judgment on the grounds that a pension contribution only qualifies for tax relief if it’s made in money. An in specie transfer, which uses a transfer of assets to fund a contribution, doesn’t meet this condition. HMRC is considering the ruling and will announce if it intends to demand repayment of tax relief.

This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit or call 01233 653500.