SIPP Commentary - Court Jesters

There has been a certain amount of excitement surrounding the SIPP industry during this year.

Two high profile court cases were finally concluded in May with judgements clarifying some very important aspects of SIPP life.

Firstly the bad news. In short, in-specie pension contributions will no longer receive tax relief at source. This is a quite extraordinary story. For those of you that remember the anarchic times prior A Day in 2006 it was commonplace to pay in-specie pension contributions and enjoy full tax relief in the same way as a cash contribution. After this historic date, there arose some confusion regarding these types of contribution but HMRC helpfully provided some very helpful guidance to ensure that these types of contribution could still be tax-relivable as long as a certain (and convoluted..this is HMRC after all!) process was followed.

Fast forward 10 years to 2016. Quite out of the blue, our good friends at HM Treasury & Customs decided, without any hint of a warning, to cease relief at source for in-specie contributions. The reason?...they’re not allowed. Not allowed, despite HMRC providing the precise guidance to allow them during the previous 10 years!

This about turn in practice was taken to the First-Tier tribunal in February 2019 and common sense seem to have prevailed with the judge ruling against HMRC. And quite right too we all thought. However, HMRC took the case back the Upper Tier tribunal on appeal and quite extraordinarily (and really I can’t think of a more appropriate word) the Judge ruled in favour of HMRC. That’s it. Inspecie pension contributions will no longer be tax relievable. And to add to the pain, HMRC will seek to recall all tax relief that has hitherto been paid on all such contributions. As most of this is was claimed as relief at source, it will mean that there will be a reduction in some SIPP members funds. This of course raises considerable complications for those members that have crystalised their funds or transferred to another provider.

Rest assured that there are still mechanisms available for individuals to transfer non-cash assets (typically commercial property or investment portfolios) into a SIPP and still maintain full tax relief. For example, a SIPP (liquidity permitting) could buy the asset and the individual could pay the proceeds in as a cash contribution thereby ensuring full tax relief. Please have a quick chat with our technical team at Morgan Lloyd and we will happily guide you through this process. The second court case was better news for all SIPP providers who have been waiting anxiously for the judgement of the Carey Pensions case.

After over two years since the original court case ended, the High Court has now sided with Carey Pensions and dismissed all claims against the SIPP provider.

In short, the case saw the claimant allege that the Carey Pensions mis-sold him a Sipp. His lawyers had accused the Sipp provider of using an unregulated introducer to facilitate investments in store pods which are now deemed to be worthless.

The judgment was finally delivered on May 18th and the claim against Carey Pensions was dismissed on all grounds, bringing with it clarity on the duties and obligations of Sipp providers, and "important findings for all financial institutions as to the parameters of ‘execution-only’ instructions". Whilst the judgement is being appealed, one constructive consequence of this case is that it has focused the minds of SIPP providers on the suitability of non-standard investments, and rightly forced them to vastly improve standards of investment due diligence.

However this also seen many SIPP providers becoming unwilling to consider legitimate non-standard investment opportunities and so diluting the fundamental flexibility of a self-invested personal pension.

With one eye on genuine investment opportunity and the other on comprehensive evaluation, the due diligence committee at Morgan Lloyd prides itself on looking at any investment opportunity that passes a sensible sniff test. For us it important to maintain that ‘self-invested ethos’ and so maximise investment flexibility whilst upholding the highest standards of investment scrutiny, to ensure the best outcome for the investor.

With our integrated systems and ‘touch of the button’ valuation capability, non-standard investments can assuredly sit alongside regular SIPP and SSAS assets in a safe and professionally managed regulatory environment.

The information above is based on our understanding of the legislation applicable to UK Registered Pension Schemes, and HM Revenue & Customs rules. It is provided as a summary only and should not be taken as advice - Morgan Lloyd SIPP Services Ltd and Morgan Lloyd Administration Ltd are not authorised to give financial advice and will not be responsible for any decision or action taken as a result of relying on this information. If you are a retail client you should seek financial advice from a financial adviser who is authorised by the Financial Conduct Authority and/or seek guidance from the Government’s Pension Wise service.