In Specie Pension Tax Relief Attack

In-Specie Pension Tax Relief Attack.

Many self-invested personal pension scheme (SIPP) and small self-administered scheme (SSAS) providers have ceased to allow in-specie pension transfers.  This is because HMRC appears to be on a mission to stop tax relief on the same.

What is an in-specie transfer?

‘In-specie’ literally translated from Latin means ‘in actual form’.  It is where the actual asset e.g. shares (which can be owned by a pension fund) or indeed, commercial property (again can be owned by a pension fund) are transferred into the pension scheme ‘as is’ and then the value transferred is treated a personal contribution to the pension fund and therefore, tax relief can be reclaimed, much in the same way as you paying premiums and lump sums into your pension.

What is HMRC doing?

In recent times, HMRC has refused pension companies when they apply to HMRC to collect the tax relief.  Indeed, they have written to some pension companies asking for details as far back as the last decade on such ‘in-specie’ transfers. They could be looking to back track and recover tax relief granted over the years for such.  It appears that HMRC is now looking to interpret the law in that only contributions made in the real form of “cash” will be granted tax relief.

Waste of Time

What a total and utter waste of time, energy and tax payers money!  So what if you pay in “shares” directly into your pension scheme?  Pension funds are allowed to directly own shares and commercial property.

The reality is that as soon as you transfer ownership of the shares from you personally to your pension, you are liable to capital gains tax on the disposal, if any CGT is payable anyway.  HMRC does not lose revenue.

By creating yet another area of red tape, HMRC are simply complicating matters even further.

So from now on:

1. You sell your shares on the open market.
2. The cash proceeds that you receive are then immediately invested by you as a personal contribution to your pension scheme.
3. You receive tax relief immediately.
4. You then buy the same shares with the new funds inside your pension scheme.

The result is exactly the same, there is just more red tape!

Maybe, there is an ulterior motive?  As part of the governments’ plans to totally overhaul tax relief on pensions, now postponed to post Brexit negotiations we assume, perhaps they are trying to block people holding shares in their own or employer “growth” businesses, which when they are bought out/taken over and share prices rocket, no capital gains tax is payable as the shares are inside a pension fund.

We think the withdrawal of tax relief on in-specie pension transfers is an indicator of major pension tax relief reform on its way.