Pension Firms Challenge HMRC’s In Specie Tax Stance

Another QROPS tax row may be brewing for expat retirement savers who have made ‘in specie’ transfers to their offshore pensions.

Some QROPS providers have allowed these specialist transfers in the past.

An in specie transfer is switching commercial property, shares or other assets into a QROPS as a contribution. The contribution then receives tax relief at the saver’s marginal rate.

If this was made into a UK onshore pension before a transfer into a QROPS, HM Revenue and Customs (HMRC) is demanding tax relief on the contribution is repaid with interest.

The amount of money across the pension sector could run into many millions.

Demands sent to pension providers

HMRC claims that the in-specie scheme has been abused by retirement savers who overvalued assets for transfer into a pension or used assets, like shares, that were not allowed as in specie assets for a pension.

As a result, pension providers, mainly firms offering self-invested personal pensions (SIPPs) or small, self-administered schemes (SSAS) have stopped accepting in specie transfers.

HMRC has denied tax relief to around 34 providers, according to industry sources.

Now, the firms are launching a legal challenge against HMRC after the tax authority wrote to them asking them to repay the relief.

To date, no individual retirement savers are thought to have received demands.

“These are considerable amounts overall across the industry,” Simon Laight of lawyers Pinsent Masons told trade media New Model Adviser.

“I can’t say what the amounts are but HMRC would not be doing this if it was not a significant amount.”

Test case for tax tribunal

“As far as we are aware, HMRC has not so far sought to re-open individuals’ tax returns for marginal rate relief claimed by individuals in the past.  HMRC’s intentions on this are not clear,”

Laight also explained reclaiming the cash was about to become time-barred for HMRC, which probably accounts for issue of the assessments.

The providers want to take a test case before a tax tribunal for a ruling.

HMRC has not commented other than to explain that tax relief has only ever been available on cash contributions and not valuations of other assets.

“HMRC has received several requests to clarify our technical understanding of the contribution of assets to registered pension schemes. This method has become known as making an in specie contribution. This article summarises HMRC’s view on the legislation and the guidance provided at PTM042100 in the Pensions Tax Manual,” says the latest pension schemes newsletter for industry professionals.

QROPS Information and Guidance

For more information about QROPS and the benefits it provides, download the iExpats QROPS Guide or complete the Get Advice form.

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