Cash is king: Or is it?

By | 28 June 2022

Tax relief is available to individuals for contributions paid to a registered pension scheme, where certain conditions are satisfied.

HM Revenue and Customs (HMRC) considers ‘paid’ generally means the contributions must be of a monetary amount, such as cash or bank transfer (NB a possible exception applies for ‘eligible shares’ relating to SAYE schemes or share incentive plans, which is not discussed here).

HMRC says ‘yes’…

However, HMRC’s Pensions Tax manual (at PTM042100) currently states that in certain circumstances, it is possible for a pension contribution involving an asset to retain its monetary form for tax purposes.

Taxpayers (or advisers) and pension scheme trustees reading the previous version of HMRC’s guidance at PTM042100 might have assumed that pension contributions could be paid through a transfer of assets. Unfortunately, in Revenue and Customs v Sippchoice Ltd [2020] UKUT 149 (TC), that assumption proved to be incorrect.

In Sippchoice, the appellant (S) was a pension scheme provider. A dispute arose with HMRC about whether contributions made by an individual (MC) (and others) to a self-invested personal pension (SIPP) were ‘paid’ for tax purposes and therefore qualified for tax relief. MC completed a SIPP contribution form on 9 March 2016, indicating that he proposed to make a net contribution of £68,324. Around two weeks later, MC wrote to S confirming that the contribution would be made by way of an ‘in specie’ transfer of shares. Five days after that, S accepted the in specie contribution. However, HMRC refused S’s tax relief claim.

The First-tier Tribunal (FTT) allowed S’s appeal and found the contribution was made in accordance with HMRC’s guidance at PTM042100. The FTT considered that the legislation was wide enough to include a monetary amount later satisfied by a transfer of shares, as in MC’s case.

..but means ‘no’? 

Unfortunately for S, HMRC appealed to the Upper Tribunal (UT), which concluded that ‘contributions paid’ for pension tax relief purposes were restricted to contributions of money. Furthermore, as ‘contributions paid’ meant paid in money, it could not include a transfer of non-monetary assets, even if the transfer was in satisfaction of an earlier obligation to contribute money. HMRC’s appeal was allowed.

Even though the UT accepted that HMRC’s guidance at PTM042100 was consistent with S’s case, that carried little weight because S had not tried to argue that it relied on HMRC’s guidance or it had a ‘legitimate expectation’ that HMRC would not resile from it.

Subsequently, in Mattioli Woods plc v Revenue and Customs [2022] UKFTT 179 (TC), the scheme administrator of a number of registered pension schemes (M) appealed against decisions by HMRC to refuse part of M’s claims for relief at source in respect of individual member contributions to the various pension schemes. The issue related to the creation of a debt (referred to as an ‘IOU’) and the settlement of that IOU by an in specie transfer of a 2% shareholding in a property syndicate.

M argued that the decision in Sippchoice Ltd was not determinative. Unlike in Sippchoice where the issue was whether the IOU caused the share transfer, in this appeal the issue was whether the IOU itself was a relievable contribution paid. M argued that the IOU became an asset of the scheme and therefore a contribution paid within the legislation. Whilst accepting that the IOU, once delivered to the pension scheme, was a scheme asset, the FTT found it was the same as any other creditor recorded as an asset. Those creditors had not paid anything until they actually made a payment. The granting of an IOU deprived the taxpayer of nothing until it was honoured. M’s appeal was dismissed.

Where are we now?

Following the UT’s decision in Sippchoice, HMRC amended PTM042100 to ‘clarify’ its position. The amended guidance states it is possible to enter into contractual arrangements involving an asset and for a pension contribution to retain its monetary form for tax purposes, if there is:

  • A clear obligation to pay a contribution of a specified monetary sum (e.g., £10,000), creating a recoverable debt obligation;
  • A separate agreement between the pension trustees and the contributing party to sell an asset to the scheme for market value consideration; and
  • A separate agreement that the cash contribution debt may be offset against the consideration payable for the asset.

However, the FTT in Mattioli Woods plc refused to consider HMRC’s guidance. The tribunal confided itself to looking at the law in forming its views.

Practical point

If the asset’s market value is lower than the contribution debt, the balance will need to be paid in cash for the entire contribution to qualify for tax relief.

The above is based on an article first published by Tax Insider (October 2021) (