Millions of pounds of tax relief claimed by retirement savers is at risk due to an official change of heart over topping up non-cash assets held in pensions.
HM Revenue and Customs (HMRC) fears the relief is abused by small business owners overinflating the value of commercial property, shares, intellectual property and other assets held in pensions in lieu of cash.
Many small business owners pay non-cash assets into their pensions and claim pension relief on the contribution in the same way as other savers do when they save cash.
The assets – technically termed ‘in specie’ contributions – mainly go into small self-administered schemes (SASS) or self-invested pensions (SIPP).
HMRC has announced 26 pension providers can no longer claim the relief. The firms operate the main non-cash contribution schemes.
Millions of pounds at risk
The tax authority is also hinting that top-ups already paid may be clawed back from 2009.
Pension providers reckon this could add up to at least a £10 million raid on pensions, with millions more in tax relief withheld.
HMRC has been investigating the tax relief payments for some time.
Because of this, many pension providers stopped accepting in specie contributions
“There has been no change in our approach to contributions to pensions schemes, including the method by which an asset transfer can give rise to a relievable cash contribution,” said a spokesman.
Trade body the Association of Member-Directed Pension Schemes has acted as a go-between for providers and the HMRC since concerns about the over payment of tax relief were raised several months ago.
Cash-only pension contributions
“We have liaised with HMRC to understand what might have developed in their expectations,” said AMDPS chairman Zachary Gallagher.
“We would expect that operators will be evaluating their own processes and considering how claims for relief at source challenged by HMRC might best be defended.”
Gallagher claims HMRC considers pension contributions should be cash and that in specie payments distort the value of a pension fund.
One leading SIPP provider, AJ Bell, explained that HMRC has told many pension providers claiming the relief at source that in specie contribution rules have not been correctly followed and refused to pay contribution relief.