What Are 'In-specie' Pension Contributions?

Published / Last Updated on 12/07/2022

An ‘in-specie’ pension contribution is when an asset such as commercial property or shares owned by you or your employer are ‘transferred’ directly into the ownership of your pension scheme and treated as a contribution with tax relief.

By making a pension ‘contribution’ either you or your employer can claim tax relief or offset against profits as tax relief based upon the value of asset (property or shares) transferred in.

This type of contribution became very attractive with people as you got tax relief on the transferred value and avoiding taxes on their commercial property or rental incomes as well as income taxes on future share dividends and capital gains taxes on future growth.

HMRC appeared never to be that comfortable given the amount of tax relief being granted but also savings on future taxation as investments inside your pension grow and receive income tax free as well as being free from inheritance taxes.

2016 Blocking ‘In-specie’ Starts

In fact, in 2016 HMRC starting blocking such ‘in-specie’ transfers arguing that tax law stated the personal and employer pension contributions must be a monetary amount.

2018 SippChoice v HMRC

At the First Tier Tribunal Hearing (Administered by HM Courts & Tribunals Service and responsible for handling appeals against some decisions made by HMRC).  At the First Tier Tribunal, it was ruled that the definition of monetary contributions paid was sufficient to use assets to pay over a debt e.g., your employer owes you money as they are due to pay pension contributions.

2020 Appeal

On appeal at the Upper Tier Tribunal, the Tribunal over-ruled and said that contributions ‘paid’ must be payments of money and not assets.  In short, any ‘payments’ must be money or in settlement of a contractual debt.  In addition, the Tribunal also stated that HMRC must make its tax guidance much clearer for the public and employers.

2022 HMRC’s New Guidance on ‘In-specie’ Transfers

Payment of a pension contribution must be contractual i.e., a debt is created.  The pension contribution must be paid even if the transfer of an asset fails.  In-specie transfers into pensions of property or shares may be allowed but there are 3 rules to comply with:

  1. A clear contractual obligation on behalf of the contributor to pay a specific amount into the pension e.g., £40,000.  There is a contractual obligation to pay meaning the pension provider can pursue the member or the employer to force a monetary payment.
  2. A separate agreement between the property/asset owner and the pension scheme to sell/buy the asset.
  3. Another separate agreement that the monetary contribution/debt due can be ‘paid for’ offset by the commercial value of the asset transferred.  Meaning that on disposal, the asset owner may also get caught for capital gains tax or corporation tax on disposal ‘sale’ of the property or shares for money or ‘money’s worth’.

Lack of Demand

Many pension scheme providers have stopped accepting ‘in-specie’ transfers as an option for contributions although there are a couple of providers that still do accept ‘in-specie’ transfers.

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