In specie transfers to SIPP?

edited 30 November -1 at 1:00AM in ISAs & Tax-free Savings
4 replies 1.7K views
C_MababejiveC_Mababejive Forumite
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edited 30 November -1 at 1:00AM in ISAs & Tax-free Savings
https://www.ftadviser.com/sipp/2018/03/15/hmrc-loses-case-on-in-specie-transfers/

Not fully understanding this but does this mean i can send a share cert to a sipp provider and they can credit it to a SIPP without a chargeable gain being made in a sell and buy ???
Feudal Britain needs land reform. 70% of the land is "owned" by 1 % of the population and at least 50% is unregistered (inherited by landed gentry). Thats why your slave box costs so much..

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  • dunstonhdunstonh Forumite
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    In-specie transfers are about moving an asset in one pension to another pension without selling it. It already has to be inside of the pension wrapper.

    Some providers operate share exchange if the asset is not in a wrapper already but that is a disposal for CGT.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • AlexlandAlexland Forumite
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    Dunstonh if you read the article it does looks like these customers were able to contribute an asset directly into a pension wrapper (without a share exchange or disposal event) and the ruling is that they also qualify for tax relief on the value of the asset?

    Further details in this article:
    https://www.ftadviser.com/pensions/2016/11/10/hmrc-s-in-specie-contribution-review-rattles-advisers/
    HM Revenue & Customs introduced a new form that included a tick box the pensions administrator fills in to say whether the claim for that month includes any in-specie contributions.
    So once in the pension wrapper I guess there would be no CGT event for disposal?

    Alex
  • bowlhead99bowlhead99 Forumite
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    Alexland wrote: »
    Dunstonh if you read the article it does looks like these customers were able to contribute an asset directly into a pension wrapper (without a share exchange or disposal event) and the ruling is that they also qualify for tax relief on the value of the asset?

    Further details in this article:
    https://www.ftadviser.com/pensions/2016/11/10/hmrc-s-in-specie-contribution-review-rattles-advisers/

    So once in the pension wrapper I guess there would be no CGT event for disposal?
    I think you misunderstand. The action of disposing of something that *you* own today, to get it into the pension, where it will no longer be owned by *you* - and will instead be owned going forward by a pension scheme operated by the pension trustees - is a disposal for CGT purposes.

    I presume that's what dunstonh is referring to when he mentions exchanging an asset that is not in a wrapper to get the asset wrapped inside your pension (only possible with some providers).

    It is a disposal for CGT... because you disposed of it... because you didn't want to own it... because you wanted a pension scheme (of which you are a beneficiary, while you're alive) to own it instead. When you stop owning it, you have to do your chargeable gains calc. Once it is inside the pension then yes it could be bought and sold by the pension trustee with no further charges to capital gains tax, because pensions don't pay capital gains taxes. But to get to the point of the pension owning it, *you* have to dispose of it, and that will be a chargeable event.

    So, OP's idea that his pensions administrator/trustee could somehow add it into the pension scheme without him needing to consider a chargeable gain on the asset for the period he had directly owned it, is a complete non-starter.

    There is absolutely nothing in the article he linked which suggests that chargeable gains are somehow not chargeable if you choose use assets (instead of cash) to pay your liability to make some promised pension contributions to the pension firm. In the situation described in your article, the assets aren't 'converted into cash' because the pension will still hold the hard assets without them needing to be redeemed and reissued (in the case of fund units) or sold and rebought (in the case of stock-exchange traded shares or commercial property). Not needing to convert them into cash, saves transaction costs, so is efficient. But the mechanic is that you as an individual have disposed of your asset. So you can't avoid treating it as a chargeable event.


    The issue that the articles were talking about was:

    - if you make a cash contribution of (say) £10,000 to your pension scheme the pension scheme will claim £2500 of basic rate income tax relief and add it to the pension. - known as tax relief at source

    - if you agree to make a pension contribution of £10,000 and satisfy that obligation by giving them shares or fund units of £10,000, the pension scheme would still like to claim £2500 of basic rate income tax relief to add to the pension *but* HMRC added into the pension scheme's tax relief claim process the question about whether the claims included claims relating to in-specie contributions, in which case it would investigate and may deny the relief-at-source claims or tell pension providers that they owed HMRC money back for the claims not being legitimate. This caused SIPP providers to be wary of taking in specie assets from outside a wrapper as contributions.

    - HMRC lost a judgement on this in 2018 where a judge told them that the law changes didn't mean that income tax relief should be denied, or that the pension firm would owe money back to HMRC for relief-at-source claims to which they weren't entitled. Because, the pension firms were entitled to do it.

    - I haven't personally kept up with whether HMRC appealed, what providers are currently willing or able to take in-specie contributions etc.

    One reason I haven't bothered to look into it is that the type of mainstream cheap SIPPs that I would use, or that people discuss here all the time for using on a DIY basis, never took in-specie contributions anyway. It is relatively complex to administer which adds cost to the service they are offering.

    The example quoted in OP's article was someone who had agreed to make a £68k SIPP contribution by transferring a commercial property into his pension in satisfaction of the contribution, instead of paying a contribution in cash and having the pension scheme buying the commercial property using the cash. His pension provider tried to claim the income tax relief at source on the £68k value of his contributions, and HMRC were not having it.

    For something like that to come up as an issue, the SIPP provider has to be one who is willing to do the legwork which comes with accepting unwrapped assets as pension contributions, and my pension provider isn't going to do that.

    It's more likely that services such as allowing in specie contributions (as distinct from in specie transfers of existing pension assets) would be available from the more costly providers or perhaps some intermediary-only providers, rather than providers who are geared up to provide cheap brokerage/platform services to the mainstream retail customer. Due to the inevitable cost implication I would only be looking for one of those more expensive / more comprehensive 'Full SIPP' places if I had particular needs not covered by the mainstream cheap ones, like wanting to stick a commercial property I owned into the pension.

    You won't find the low cost provider names frequently mentioned here such as IWeb or Cavendish letting you hold commercial property, let alone accepting it instead of cash as a contribution. And they don't have the software infrastructure to allow you to set up a contribution of £x and then fund it by transferring shares electronically or in paper certificates to meet that commitment (especially as the value of the shares might have changed before they are received and accepted). All you can do with the cheap providers is (a) contribute cash or (b) sign off a paper form to transfer existing assets in specie, e.g. from another SIPP provider when they are already inside the pension wrapper.
  • MDMDMDMD Forumite
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    bowlhead99 wrote: »

    - HMRC lost a judgement on this in 2018 where a judge told them that the law changes didn't mean that income tax relief should be denied, or that the pension firm would owe money back to HMRC for relief-at-source claims to which they weren't entitled. Because, the pension firms were entitled to do it.

    - I haven't personally kept up with whether HMRC appealed, what providers are currently willing or able to take in-specie contributions etc.

    HMRC did appeal and the hearing was meant to be at the end of last month
    https://citywire.co.uk/new-model-adviser/news/date-set-for-hmrcs-in-specie-sipp-showdown/a1183959

    However it looks like the hearing (UT/2018/0087) didn’t go ahead and a new date is to be set.

    https://www.gov.uk/government/publications/upper-tribunal-tax-and-chancery-register-of-cases/upper-tribunal-tax-and-chancery-hearings-and-register-2014-to-date
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